Friday, July 29, 2011

How to improve your credit score (and why you might want to)

Having a clean credit history can give you access to the best loans. When a lender uses their credit scoring methodology, you must come out with an acceptable rating to be even considered as suitable customer. Loan companies are always looking for the best quality customers with the lowest possible chance of defaulting.

Post credit crunch era, the number of lenders in the market has greatly reduced and so has their appetite for anything less than good credit customers. Even sub prime lenders look for the cream of customers in their target market.

The differential in rates charged on the best loans compared to those available for poorer credit customers can be substantial.

Interest charged is the biggest factor affecting the amount to be repaid, so getting yourself qualified for the best loans can save hundreds or even thousands over the term of the loan.

Everyone has a credit history. As soon as a bank account is opened or a mobile phone taken on contract, your record will be marked and subsequent payment experience logged.

All providers of credit, insurance and services share their data with others via credit reference agencies. Any company looking to grant credit accesses this information and then uses it to assign a credit score, or a rating of the likelihood of you defaulting on your obligations.

Making payments as they fall due is one of the key factors used in credit scoring, so a good track record already scores you highly.

That means making sure that your credit history is correct and contains no errors. Suppliers make mistakes, so accessing your credit file and checking to see that all is as it should be is a good first step.

Any errors should be raised with the original supplier, since it is they that have to correct the information and resupply to the credit reference agency.

Other factors affect your credit rating too. Living in an owned home improves the score and the longer you have lived there helps too. This shows that you have stable residence and infers that you are less likely to move in the future.

Localities, like people, have credit profiles. Some neighbourhoods have residents with a high default rate on loans and other services. Whilst you may not know this directly, wealthier residential areas tend to have a better record of meeting their financial commitments.

Moving to a better neighbourhood can improve your credit score!

Whilst you may be in full control of your credit history, you may not be aware of your partners or other residents in a shared home. Just living close to, or with, someone with a troubled past can affect your credit score.

So whilst there are many things you can do to positively affect your credit score, some factors are more difficult to either be aware of or affect.

If a loan application is rejected, you can ask for a reason why so that you can focus on the issue and try to improve or resolve it.

Making too many applications for loans can also negatively affect your credit score. Be judicious in whom you apply to and look for the best loans suited to your need rather than flooding the market with applications.

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