Credit Rating: An indicator that financial companies study when granting the customer any kind of facilities, where the financial history of borrowing or lending and credit worthiness of the entity or the person obtained from the statements of its assets and liabilities with an aim to determine their ability to meet the debt obligations.
The higher your credit rating is, the more significant and healthier your finance is; in fact it is very important that lenders refer to it when you apply for loans, credit cards or any kind of banking facilities.
However, in order for credit cards to be approved, they often need a “good” credit rating.
What makes credit rating score good?
Some of the important factors that significantly affect your credit score rating include amounts due, payment history, length of credit history, credit mix (number of different account types you have) and new credit.
If you want to raise your credit score, it is important to prove that you are a responsible borrower and will not pose a risk to the lender. Why? Lenders do not want to give money to people who will not repay it.
Some of the most important things you can do to improve your credit score are:
- Pay bills on time
- Keep credit card balances low
To help you do this, you can create a detailed budget and set up monthly alerts or automatic payments to ensure that your invoices are paid on time.
The longer the habit, your credit score will increase.
For example, suppose you have a personal loan for 10 years. You have paid the dues on time for eight years now. This will improve your credit rating.
What makes a credit score low?
There are some of the actions that affect the credit score:
- Late payments
- Not paying your loans at all
- Exceeding the credit limit
- Not paying credit card payments at the specified times
- Bounced checks
- The customer’s name on blacklist
For example, if you don’t pay bills on time, companies can report your non-payment and this will result in a negative sign on your credit report, which will reflect badly on your credit rating reports.
Keeping a high outstanding balance on your credit cards is another common mistake indicating that you may not be able to repay what you borrowed, which will also reflect badly on your credit reports.
Ways to improve your credit scores
If you want to improve your credit rating focuses on improving your level with the five factors that affect your credit rating.
Here are details of these factors and how each contributes to the outcome:
Payment history: 35%
Credit usage: 30%
Age of credit accounts: 15%
New credit inquiries: 10%
Credit mix: 10%
To improve your credit score, you should start somewhere.
A good place to start is to find out what makes a credit score good or bad.
In the end, improving your credit score boils down your spending and your money management.
