How many of us really know what credit rating is? Yes, we hear a lot about it when we open our bank accounts or we read about it in an article but we still have little to no idea as to how it can affect us, how to manipulate it and why it is so important to our lender.
If you are having problems understanding the notion of credit rating, then you are in luck. We will discuss about credit rating and its importance for the lenders.
What Is Credit Rating?
Credit rating is the same thing as a credit score. The higher the score, the more advantages you get when you request a loan. The lower your rating or score is, the more restrictions you get on your loan or financial services. And in some instances, your request may get denied.
How the Lender Sees It
A lender will decide if you are worthy of a loan based on your credit score or credit history. He/she will have no problems lending you money when he/she sees that you have a positive credit score, that you have no problem paying your debts and have a decent financial gain every month.
But what if you have a low credit score? In that case, the lender might see you as a financial risk. Because of that, he/she will prefer to give you secured loans (when your home, car or property is used as a guarantee) and apply some restrictions. Those restrictions can include a higher interest rate or a lower amount that you can borrow.
It all depends on your financial situation plus the way you handle your debts. Besides your credit score, a lender will check if you have any defaults, if you pay your debts on time, if you have bankruptcies, court judgments, personal insolvency agreements or debt agreements.
What Credit Score Do I Need?
If you have a rating between 833 and 1,200, then your credit score is considered excellent. If you have between 726 and 832, your credit score is considered very good.
Between 622 and 725, you get a good rating, and if you have somewhere between 510 and 621, you get an average score. A rating between 0 and 509 will give you a below average score.
So, as we stated above, the bigger your credit score is, the bigger your chance to get an advantageous loan.
What Affects My Credit Score?
Your credit rating can be affected by many factors. Here are a few things to consider:
If you want to get a positive credit score, you will have to pay your bills on time and not apply for new credit cards or loans. Always pay off outstanding loans and credit card debt and make your monthly repayments on time every month. You should always have a low balance on your credit card.
Also, hang onto those good credit accounts where you have made your repayments on time for several years. Having an available credit limit that is higher than your credit balance is also good for your credit.
Here is what affects your credit score negatively: making late payments on your loan or your credit card, applying for credit cards or loans too often or applying and being rejected for a loan or a card. Also, having debts of at least one hundred fifty Australian dollars that are overdue for sixty days or more is bad for your credit rating.
Another thing that will have an adverse impact on your credit score is getting multiple balance transfers on your credit card or getting a balance transfer on your credit card but not repaying it by the end of the promotional interest rate period.
So, in the end, it is your choice how you plan to deal with your bills, loans and your whole financial situation. When it comes to money and lenders, what goes around comes around, so try your best to be careful and calculated at all times.
How to Fix Your Credit Rating?
You can repair your score, but you cannot delete certain elements like defaults, bankruptcies, court judgments, etc. You can erase a default if it’s incorrect and has nothing to do with your account. If that’s not the case, then everything will stay on your file for five to seven years.
You can go with your file at a credit repair centre and try your best there, but you will have to pay a good amount of money. However, you cannot have the certainty that all of the listings will be removed.
You could try paying your debts on time, make the right financial decisions (like not applying for credit cards or loans too often) and save some money.