Personal Finance: 5 Ways to Improve Your Credit Score-Credit Rating.
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Credit rating or credit score is the most important asset to applying for personal loans or family loans such as taking a house mortgage, car loan, and applying for a credit card. This is because a good score will receive a lower interest rate, which means you will end up paying less for your loan.
One of the most fundamental aspects of personal finance is to maintain your credit rating above the average because it helps you to minimize the risk of paying a huge amount of money on high and fluctuating interest rates. In other words, borrowers with a good credit rating tend to pay much lesser on personal loans, and home loans than those who have a bad credit rating.
In addition, financial institutions like banks and investors– will examine your credit score based on your personal finance history, which allows them to make a decision regarding interest rates and issue a new credit line to you.
It is important that individuals should keep an eye on their credit rating in order that they can continue to improve on their credit score, which can have huge benefits in terms of achieving financial goals later in your life.
1. What is a Credit Rating-Credit Score?
2. Understand Your Credit Scores?
3. Different types of Credit Rating?
4. 5 Ways to Improve Your Credit Score.
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Key Takeaways
Table of Contents
- Several ways to discover credit score ranges via credit agencies or financial institutions.
- It is important to understand your credit standing before making any serious financial decisions.
- Follow the five key elements to improve your credit score-credit rating.
1. What is a Credit Rating-Credit Score?
A credit score is a number, which ranges from 300 to 850 points- the higher credit score equals the higher creditworthiness you will receive from your money lenders. In addition, your credit score will be determined based on your personal credit history. For example, the ability to pay down your debt, repayment history, and other credit factors.
For this reason, the bank will use your credit score to figure out the probability that you are able to pay down your debt when it comes to applying for personal loans or home loans.
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How Do I Find My Credit Score?
There are many trusted and reputable sites such as financial institutions, banks, and other insurance firms, where you can receive your creditworthiness- credit rating within just a few minutes.
As mentioned before, the result of your credit score will be ranged between 300 to 850 points. It is your personal responsibility to keep the credit score above 500 points as it gives you a good credit standing. A good credit standing means the borrower will receive a lower interest rate when it comes to applying for bank loans.
Try your best to improve on credit standing such as paying off credit card debt because it will have a big impact on your financial freedom later in your life.
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2. Understand Your Credit Score Ranges?
Your credit rating indicates the ability you will repay a loan based on your credit history. There are five key elements that the credit checker uses to discover credit score ranges for individuals and businesses in order that they will make a decision based on those factors.
- Individuals payment history
- Credit’s types
- Credit History
- Amount of individual debt
- and the recent application for loans or credits.
As mentioned earlier, your credit score will be ranged between 300 to 850 points- the higher credit standing means you will have a good credit score. The following blocks of credit scores represent the highest score to the lowest credit score.
- 730 to 800: the score falling in those ranges is an excellent credit rating, which you will receive the lowest interest rate compared with those who have a bad credit standing.
- 670 to 720: is a good score, you will almost get loan approvals with the best interest rate for this score.
- 570 to 660 is considered a fair score.
- Below 550 is a poor credit standing- you need to find ways to improve your credit rating before planning to take bank loans.
3. Different Types of Credit Rating
Before moving to explore different types of credit rating, there are several global reputable credit agencies such as Moody’s, S&P, Fitch, and DBRS. Those credit rating companies have the authority to provide credit standing for governments, businesses, and individuals based on the five main elements, mentioned above.
There are 8 main types of credit rating, which are listed below for your consideration. Depending on each credit agency, they will examine based on the five key elements of credit rating in order to determine the final score.
- Individuals credit rating
- Borrowers credit rating
- Fixed deposit credit rating
- Bonds rating
- Equity shares credit rating
- Short-term instrument credit rating
- Real Estate developers’ credit rating.
- Medium and long-term loans/investments rating( public deposit, certificate deposit CD)
4. 5 Ways to Improve Your Credit Score-Personal Finance
It’s impossible to boost a credit score overnight because it requires time and effort to work on some of the current issues, maybe at least 6 months to see the result. The given 5 best practices on how to boost credit score over time.
1. Pay Your Bills on Time
The first action you should take is to keep an eye on your bill and make sure you pay those bills on time such as a mortgage loan, car loan, and personal loan. If you always pay your bill late, the company will charge a late fee, and you may receive a bad credit rating after 6 months.
For this reason, it is important to keep up to date with the bill payments in order to avoid an unnecessarily late fee and, the company may report your default payment to the credit agency, which you will end up receiving a lower rating.
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2. Do not Exceed Your Credit Card Limit
When it comes to credit card debt, it is important that individuals should always know their credit limit by control spending. Ensure to avoid the late payment on your credit card debt in order to escape from missed payment penalty and you may receive a bad credit rating if continue to exceed your credit limit.
The worst-case scenario is when you do not have the ability to pay down the debt, where the interest fees keep accumulating over time until the point that it is totally out of your control.
3. Understand Your Current Credit Score
The third action is to get a credit report, which you can understand your current credit score. You can drop a request to a local bank regarding your credit score, they will send you a copy of your credit history via email.
One big benefit of understanding your credit score is to provide the necessary information about your creditworthiness. For this reason, you can always use it as a benchmark to improve your credit score by paying off your debt and control of your credit card spending.
4. Fix Any Errors From Your Credit Report
After reading the credit report, you should take a look at the report in more detail, and find any mistakes, which have a negative impact on your credit score. And if you find any errors, then you should contact the credit bureau via email in which you explain the detail of the error that they need to fix without any delay.
In case you have any current credit line applications with any institution, you should update them with a new copy of your credit report so that they will ensure to give you a better interest rate.
5. Work With Credit Repair Agencies
At this stage, you should know your current credit score and try to find ways to improve your credit rating- one of the best ways is to work with a credit repair agency in your area. In this case, the credit company will act on your behalf to negotiate with your lenders in order to find the best alternative to pay off your debt on the arranged due date.
By assigning the task to a credit company, you will have a greater chance to improve your credit rating within a shorter time frame. However, individuals need to pay a small fee in order to secure their service on your behalf.
By Jiro Nguyen, Founder of JN-Solutions parent site of- Jns-Millennial.com.
The content is based on the personal opinion of the author. It is accurate and true based on the best knowledge of the author and his research. Content is for entertainment and informational purposes only and we are not financial advisors, personal counselors, or other professional advisors. It should not be used as comprehensive or a substitute for professional advice.