If you had a $100 windfall, what would you do with it?
Six Steps To Improve Your Credit Rating
2) If possible, only apply for credit that you think you’ll be given. Every credit application that you make will be recorded on your file, so a string of refusals could deter other lenders.
If your regular debt repayments take up more than 36% of your monthly income, you’re in danger of being refused credit. Either that or you’ll be punished with a much higher rate of interest.
As a rough guide add up your total monthly income (after tax). Include all wages and any overtime, commissions or bonuses that are guaranteed. Then add any other forms of regular income such as interest or maintenance payments. If your monthly income varies then calculate the monthly average over the past two years (add all your income over the past two years and divide the answer by 24). Now add up your monthly debt repayments. Remember to include payments for credit cards (use the minimum monthly repayment figure), personal loans, overdrafts and mortgages. Finally, add any monthly rent that you pay.
Then divide your total monthly debt repayments by your net monthly income. The answer is your total debt-to-income ratio. If you had a monthly income of $1000 and monthly debt repayments of $250, your debt-to-income ratio would be 250/1000 = 0.25 or 25%.
As I say, the critical ratio is 0.36 or 36%. Keep below this and you are much more likely to be offered credit at reasonable rates of interest. The lower your ratio is the better deals that you’ll be offered.
3) Don’t apply for too much credit at the same time. Lenders become suspicious if they see a sudden avalanche of credit applications on your file. They may draw the conclusion that you’re applying for it all at once so that you can honestly answer the ‘how many other loans/credit cards do you currently have?‘ type question, that appears on most credit applications.
4) Always pay your bills on time. Even paying the minimum, although it’s not perfect, is much better than nothing. Payments that are more than 30 days late will have a negative effect on your credit rating.
5) Credit reference agencies tend to place more emphasis on bad reports (such as court debt judgements, credit application failures) than good reports (such as loans that have been paid off successfully). Negative details will remain on the files of the credit reference agencies for six years. So it’s a good long term strategy to avoid bad reports and build up as many good reports to your name as possible.
6) Avoid all those ‘credit repair’ companies that claim they can improve your credit record. They can….at a price! You know, the type you see advertising in the back of national newspapers, claiming that they can remove Debt Judgements or other court decrees that exist against you name.
What a load of rubbish! These companies can't do anything that you can't do yourself. So forget using a credit repair company. These shady characters are nothing more than a front for a lender or a broker trying to sell you a loan.
Here’s the sketch: You pay them to ‘clean’ your credit record. They apply their ‘powerful’ methods and magically give you the ‘all clear’. But they’ve not actually removed anything from your record….because they can’t. But you won’t know that!
And then to prove your new ‘creditworthy’ state they either offer you a loan or put you in contact with a company that’s willing to lend to you.
If you accept, you’ll have fallen into the realms of sub-prime finance, which means rip-off city.
Using the details that I have just provided, you can easily take steps to improve your credit record yourself. And in the process allow you to refinance your current debts to a much lower rate of interest.
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