We live in a society where borrowing money will likely be required at some point. When banks lend you money they do it on the basis of your credit rating. It is therefore critical you think to yourself, how can I Improve my credit rating?
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Takeaways
Understand how your credit score and credit rating are linked
Which is the most action to take
Find out which positive change is easiest for you
Simply put, because you have no other choice. For those who one day want to get on the property ladder you will need a mortgage. Before lending you money, banks will want to see a previous record of how you handle debt. This they can see though your credit score. Think of a credit score as a prediction of your credit behaviour.
As a result you should be thinking regularly how I can improve my credit rating. Some of the actions you will need to take are unknown to you but some will require you to change your habits. This is hard, but if you have the aim of one day owning your own property, you will have to make that adjustment.
To work out your credit rating, firms will look at your credit score. Your credit score is a record of how you have handled your personal finances. Specifically it will focus on how you handles repeat actions. This can include paying your utility bills, whether you go overdrawn and paying your credit card bill on time.
It is therefore essential that the details you 'leave around' are correct. An example would be updating your address when you move locations. This would include updating your bank, your driving licence and where you are registered to vote. For those who are in rental accommodation and potentially moving around a lot there is another solution.
Why not register 'your life' to your parents addesss? This will save you the paperwork everytime you move. Banks will also see stability (they like that!) and you will probably benefit from your parent's postcode being seen as safer than yours. (i.e. safer to lend to).
Be aware that if you do not change your address and someone with a poor credit record takes over the flat you were renting, it could have an affect on your credit rating.
It will help your credit rating if you leave a regular trace of your daily life. Examples of how you can do this involve getting your name on your council tax and utility bills.
Other include using direct debits wherever possible. This is because your mortgage will be paid by direct debit. If you demonstrate to a bank that you can meet pay your direct debits every month, this will give the bank the reassurance to lend to you.
Pay your bills on time. How many times have you missed or been late on a payment? This is arguably the biggest improvement to your credit rating you can do. If you never miss a payment in future, watch your credit score improve dramatically.
From a bank's perspective, if you are unable to pay your bills on time, then how will you be able to pay your mortgage on time? It could be that your poor discipline is down to over-complication. Namely you have too many cards (store cards?) to pay off at different times in the month. Maybe you should look to reduce some.
This new found simplicity and discipline may also involve reducing any financial engineering ploys you have on the go. Examples of this would include stoozing.
This may appear odd, but is not a suggestion to spend more. Instead it is a change of what card you spend with. If you put your daily spending throug your credit card (and then repay it at the end of the month), banks can see you creating debt and re-paying it. This is is something they like.
Indeed, if you use a direct debit you pay off your monthly balance, then even better. As we saw above, this shows you are already ready to be lent too.
This measure is not neccesarily a credit rating changer but it can help. First and foremost, it would be sensible to download your credit score from different credit scoring companies. Examples would include Experian and Equifax.
You can then work out what they attach importance to and ensure that this part of your life is up to scratch. You can also benefit from particular schemes such as Experian boost. These schemes will look to help you improve your credit score by getting you to share more information about yourself.
By doing so credit agencies getting a better feel for your personal financial habits and whether you are trustworthy. On the downside you have to accept sharing even more information with another financial corporation.
To improve my credit rating is a thought that many do not think of early enough - even though they may have a desire to own their own home. As with many things in finance, the steps are not complicated but require discipline.
Such discipline will ensure to get to a position where borrowing is easy and in turn puts you in a position where financial freedom (through owning you own home) becomes possible. Do not forget your home is an asset which in later life can be lent against (for example if you want to start a business). All of this starts with having a good credit rating!
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