In order to start to improve your credit score it is necessary to first understand how the score is calculated from your personal credit history. The information is listed in your credit report, which is obtainable from a credit bureau. We are able to take control of our financial health by improving our credit score and financial status.
How credit score is calculated and impacts financial status
The credit report outlines how the credit score is calculated, based on credit history. Credit history includes financial and bank accounts, credit and store cards, payments made on time, late or defaulted on and length of credit history. Errors in credit history are likely to impact accurate credit score calculation. Providing accurate information to the credit referencing company enables correct calculation that may potentially improve an individual’s credit score.
Lenders and creditors use the credit score when deciding to approve or decline a loan application, such as for a short-term loan. Two people applying for the same loan, but with varying credit scores, are likely to be quoted different interest rates and monthly repayment amounts.
Lenders use the credit score, as an indicator of ability to meet future repayments for both long and short term lending. The higher the credit score, the stronger the individual’s financial status and credit worthiness, leading them to be more likely to receive loan approval at a lower interest rate.
To be viewed more favourably for long or short-term loans, individuals can take steps to improve their credit history and score. Obtaining a credit report from a relevant credit agency, reviewing it and seeking advice from a financial professional, if required, may help individuals take steps to enhance their financial status.
Potential ways to improve a personal credit score
The steps an individual may take to improve their credit score include:
- Being listed on the electoral roll at a current address.
- Closing inactive accounts and credit cards and managing active ones well.
- Making outstanding debt payments or paying minimum payments on time.
- Paying all bills and financial repayments by the payment clearing or due date.
- Building a healthy six-month credit history, such as not missing credit card payments.
- Avoiding being responsible for another person’s financial habits or obligations.
- Using quotations rather than credit searches when exploring financing.
- Getting the timing of credit applications right; for example, not just after moving home.
- Avoiding repetitive loan applications and rushed ones with credit declines.
- Checking personal credit report annually for accuracy.
By taking control of individual financial and credit history, it is possible to enhance the possibility of improving personal credit score and loan options. As soon as a loan application is declined, avoid making further applications and obtain a credit report to find out why the loan was not approved.
To build credit history, start by using a credit card with a responsible company and make small, but regular, purchases and repayments. Showing a long-term employment or self-employment history and home address with home phone, reassures lenders. Having a healthy long-term banking history with the same bank also strengthens credit worthiness.