July 19th, 2018 | Updated on July 23rd, 2018
Whenever you apply for a loan from a mainstream lender (such as a bank), your credit rating will nearly always be used as the basis for whether you are accepted or refused.
A credit rating is based on data collected from all your financial dealings, such as previous loans/credit cards, and gives the lender an idea of your ability to pay back a loan. As such, here are some of the ways you can improve your credit rating.
1. Pay Your Debts
It may sound obvious, but putting any outstanding debts at the top of your list of priorities is undoubtedly one of the most effective ways to improve your credit rating. This shows a lender that you can handle having a debt, and are likely to be able to repay them if they lend you money.
Paying off the debt as quickly as possible (or at least within the agreed timeframe), and not letting it drag out will ensure that your credit rating remains stellar. Remember that paying off debts should always be prioritised over saving money, because debts will nearly always increase in size at a much faster rate (due to interest) than savings.
2. Managing Finances
Another effective way to improve your credit rating is to manage your finances effectively. This means planning ahead for bill repayments, and ensuring that you always have enough money in the right bank accounts to cover monthly direct debit payments.
There are now some specialist banks which provide more sophisticated bank accounts to help you manage your money. They can for instance, help you control day to day spending by automatically setting aside money for bills, which means that you should never miss a repayment (thus helping you boost your credit rating).
3. Credit Card
For those with no credit rating at all, it can actually be very difficult to get a loan, since you have no way to show a potential lender that you can manage and repay a debt. Ironically, one of the most effective ways to get around this is to deliberately put yourself in debt with a credit card, as these are fairly accessible to those with no credit rating.
If you make a few payments with the credit card each month, and then pay it off each month, you should eventually be able to get a stellar credit rating.
These are just some of the ways you can improve your credit rating. With an excellent credit rating you should find many more lender’s doors open, just be sure to continue to manage your debt responsibly to maintain it.
