Category: Credit Scoring

The Easiest Way to Increase Your Credit Rating Before Submitting a Loan Request

It is now easier than ever to take out a loan, however, this accessibility usually only refers to how much the procedure has been simplified. You will still need a good credit rating in order to get a personal loan, especially if you are looking to borrow a large amount of money.

What most individuals are not aware of is the fact that their credit rating is an algorithm that consists of several types of information. Some of this data can be altered faster than the rest and knowing what to do in order to quickly give your credit rating a boost can make a world of difference when it comes to the cost of a loan.

This having been said, there are 4 easy ways through which you can increase the likelihood that you will get a lower interest rate and more money. Here is what you need to do:

Reducing your current credit usage can improve your score massively.

Reduce Your Current Credit Usage Ratio

One important component of your credit rating is determined by how much money you spend using your credit cards. This ratio is calculated by looking at the total amount of credit that you have at your disposal and then subtracting how much money you’ve already used.

For example, if you have a credit card with a £5000 limit on it and use it to pay for products that cost £2,500, you will have used 50% of the available credit. This results in a 50% credit usage ratio. It is important to keep in mind that a high credit usage ratio can not only increase the interest rates that you are offered by banks but may, in some cases, prevent you completely from getting a loan.

When it comes to preparing to take out a loan, it is not necessary to completely pay off your credit card debt. However, you should make sure that your ratio is under 30%.

Repay Any Outstanding Debt That You May Have

If you have money in a savings account, using it in order to repay any outstanding debts that you may have will increase your credit rating by a lot. Even if you cannot repay all of them, paying off smaller ones such as payday advances will make a big difference.

However, you must pay attention to any early repayment fees that you may be charged by lenders, especially when it comes to variable interest and quick payday loans. If the fees are too great, ask the lender about the possibility of making additional repayments each month, in order to shorten the term of the loan.

Do Not Submit a Large Number of Applications in a Short Amount of Time

Submitting a large number of loan requests to multiple lenders will reduce your credit rating. If you are interested in determining what terms and conditions each lender would offer you, it is better to use online calculators in order to establish what the interest rates and monthly instalments will be.

Consolidate Your Current Debt

One of the best ways to increase your credit rating is also one of the most useful. Your credit rating is calculated by looking at the number of loans that you are currently repaying, along with any other type of debt that you have. By consolidating that debt, you will essentially take out a larger loan that you can use to repay several other smaller ones that you have taken out in the past. In most cases, this will leave you with a single monthly payment to worry about that has one interest rate.

This also means that your credit rating will rise, considering that you will essentially remain with only one loan that you have to repay.

8 Ways to Improve Credit Score

One of the reasons that a lender rejects loan application is low credit score. But, what is a credit score and how do you get a low or high score? A credit score is a numerical value that describes the likelihood that a person would pay back what he or she owes. In the UK, one can check his or her credit score at Experian, TransUnion, and Equifax. These agencies collect credit data that they use to come up with a credit score. A low credit score shows that one may not be able to pay back credit while a high score indicates that the person would most likely pay back a loan or a credit.

Lending and financing companies refer to these agencies to see the credit score of loan or credit card applicants. Aside from quick approval, those with high credit rating can enjoy low interest rate and easy repayment scheme. However, short term lenders are not strict when it comes to credit score or rating. Nevertheless, banks and other traditional lenders are strict when it comes to meeting the credit score requirement.

If you are planning to borrow from a bank or finance company, improving your credit score is important. Here are 8 ways to give your credit rating a boost.

Register as a Voter

Why is being a registered voter important in improving your credit rating? Your registration is proof of who you are and where you live. To lenders, a real name and address is guarantee that you cannot deny your debt or run away from it. Working on the same job, employer and having the same bank account that you used during the registration would do wonders to your credit score or rating.

Close Credit Cards, Debit Cards, Mobile Contracts, and Store Cards Not In Use

Close all credit cards, store cards, debit cards, and mobile contracts that you do not use anymore. To make sure that you get rid of all this baggage, visit the office or store personally. Making a phone call or doing the task online is not an assurance that the company involved has closed your accounts. Having a clean slate regarding unused credit cards and accounts would contribute to the improvement of your credit score.

Cut off Link with Former Business Partners 

If you have had a joint bank account or a mortgage with your former spouse or business partners and you have stopped getting involved, you must inform the credit reference agencies that you are not anymore connected with the other person or persons. Taking this step is important because if you are still linked with these people, their credit rating could affect you. Their unpaid debts and financial responsibilities are also yours, and if they fail to pay them back your credit rating could also suffer.

Always Make Prompt Repayments

If you have a loan or credit card, make sure to always pay on time until it is fully paid. All your payments and your behaviour would be reflected in your credit history. Being a good payer would help improve your credit rating or score.

Use a Credit Card to Build Your Credit History

You can use a credit card to build and improve your credit history. Get a credit building credit card and use it to make small purchases. Always pay fully the balance at the end of the month. It won’t take long before you can have an excellent credit rating.

In the UK where taking a loan has become a way to get funds for an emergency or to purchase a car or a house, improving your credit score or rating is of utmost importance. Take note of the ways to improve your credit score and observe them. The next time you apply for a loan where a credit rating is part of the requirements, you would never fear rejection.