How to Improve your Credit Rating

Credit ratings are important because it helps financial institutions, like ACG, determine the risk borrowers pose to them. Unforeseen circumstances and the financial hardships we have witnessed during the Recession can be fixed. Many businesses have been declined or are experiencing high payments from their financial institutions. This can be changed! You can improve your credit rating, save yourself money and open your path to new financial opportunities, by taking initiative right now. Our financial experts strongly suggest following these guidelines. They will benefit you in getting the most for your hard work and effort in any and every financial credit situation.

Credit Score’s are composed of the following 5 things:

1.       Previous credit performance
2.       Types of credit available
3.       Level of indebtedness
4.       Credit duration
5.       Pursuit of new credit

In order to improve your Credit:

1. Review Your Credit Score

Any mistakes such as a mix up, late or unaccredited payments reported on your credit report from previous credit transactions or loans result in a poor credit rating. This can easily be fixed by notifying the credit reference agency about the errors on your credit report.

Reason:  According to Equifax, studies show that many credit reports contain mistakes that could be affecting your credit report negatively.

2. Get Rid of Unused Credit

If you have credit lines such as credit cards that you hardly use or do not plan to use in the future, you will highly benefit from closing the accounts. Having fewer credit cards will improve your chances of increasing your credit rating as long as you manage your spending and payments responsibly.  After closing your accounts make sure that the credit accounts are reported as settled on your credit rating report so lenders do not assume they were closed for other reasons.

Reason: Having different lines of credit open for over a long period of time are sometimes regarded by lenders as revolving debt. This revolving debt affects your credit rating and an increased in debt decreases the amount allowed to borrow with higher monthly payments.

 3. Avoid Frequent Late Payments

 Create an action plan in which you set a monthly budget that eliminates unnecessary purchases, spending over your limit, and spending more than 30% of your credit limit. Do not hit the maximum limit of your credit card or store cards.

Next step to avoid late payments is set a realistic monthly deadline that will help you pay your bills every single month on time. If you run into a late payment situation, do not let it happen again. Revaluate and strictly enforce your budget and your limit and do not use your credit until you improve your credit rating.

If you have run into a routine of making late payments or paying your bills due to financial difficulties such as a job loss, look into consolidating your bills and calling your creditors to explain your situation and if possible, request for a payment schedule.

Reason: Creditors do not like cards with spending close to their maximum limits. Creditors view balances of more than 30% of the credit limit to be excessive debt because it is proven that the closer you are to the limit or maxed out the harder it is to keep up with the payments and the ability to manage debt. Similarly, credit ratings are measured in terms of late payments’ lateness in days and monthly occurrence. So having more than one late payment a year can hurt your credit rating more than it improves it in any situation. Especially in the last two years, since lenders look most closely for credit history during this period.

4. Unnecessary Credit Searches

Avoid applying for credit at different locations to prevent your credit rating from having an over excessive amount of credit searches. Make sure to keep this in mind when signing an application and if possible, make sure that the lender can run a soft pull.

Reason: Financial organizations run credit searches when applying for services and most searches stay on your credit report for two years. Lenders view the display of too many credit searches/credit activity on your credit report as a sign of financial hardships, bad credit, or having too much debt you cannot repay. In the financial industry both soft pulls and your own activity of viewing your report do not affect your credit rating.

 5. For Those with Bad Credit: Open New Accounts and Follow Step 3:

Opening new accounts, consolidating your debt, and closing off old accounts for short or poor credit history owners is the ultimate credit improving strategy. After doing this following step 3 and responsibly making payments on time and managing your credit limit will greatly improve your credit over time.

Reason: You have a new beginning to prove to lenders that you can manage credit.

The Key to your journey in improving your credit rating score is a matter of time, perseverance, and determination. No matter where you stand on this road, following each and every step of the way will get you closer to a brighter and clearer future.