5 Ways to Improve your Credit Rating
Posted November 11th, 2008
and last modified March 10th, 2010There are typically 5 key factors credit bureau’s analyse when taking your credit rating into account. Therefore, there are 5 methods around these judgements you can take advantage of to improve your credit rating.
What’s Taken Into Account for my Credit Rating?
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- Payment History: How consistently you make your repayments on time. – 35%
- Total Amounts Owed: Your Debt:Credit ratio. The lower the better. – 30%
- Length of Credit History: How long you’ve had your lines of credit open for. – 15%
- New Credit: How often you apply for new lines of credit. – 10%
- Type of Credit in Use: May influence whether the credit you’re applying for will be approved. – 10%
What can I do to Counter these Factors?
The biggest no-brainer to improve (or slowly repair) your credit rating is to continue or begin making all your repayments on time. This will prove to the banks you’re a responsible client, who they won’t have to hassle for repayments yet still earn interest from.
Second is your debt:credit ratio. Regardless of how much you earn, a $3000 balance on a $5000 limit card is much worse than a $3000 balance on a $10000 limit card.
The $5000 limit card would have a debt:credit ratio of 60%, as opposed to 30% on the latter card.
Next comes the length of credit history. A customer who has made his repayments on time and been financially responsible for 3 years on his account will make a much larger impact that someone of the same financial calibur for 3 months.
Likewise, somebody has been irresponsible with their credit card or other forms of credit for 3 months, won’t have as big of a negative impact as 3 years on the downhill.
Although banks and financial providers enjoy lending new credit, it is a sign that you’re under constant financial stress and relying on borrowing money to get by. This ‘loose’ financial nature is un-assuring to the banks, and as a result you should limit how frequently you apply for new credit.
Finally, the type of credit can have different weighting factors. For instance, the impact on your credit score for managing an expensive mortgage will be heavier than that of a teenager managing a student credit card.
In summary:
- Make your repayments and fee payments on time.
- Reduce your debt:credit ratio (carrying out a balance transfer to a credit card with a higher limit can be successfully utilized).
- Keep your old/current accounts open for as long as possible. This will improve your length of credit history.
- Try to only apply for new credit when you truly need it.
- Keep in mind how serious your line of credit is. If you can only pay off one out of two of your credit lines at one time, choose the one which you believe would make a bigger impact on your credit score. If you are managing more than one credit card, always attempt to reduce the one(s) with the largest balance as well.
Related posts:
- How Can I Improve My Bad Credit Rating?
- How does a Balance Transfer Affect your Credit Rating?
- Managing your Credit Rating
- Credit Rating Score explained
- Managing Credit Through Personal Events
- How To Fix A Bad Credit Record and Improve your Credit Score
- Credit Cards for Good Credit Rating Comparison Addition
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