Everything You Need To Know About Credit Ratings

If you are trying to get your finances sorted, one of the main things you’ll probably want to look into is your credit rating. This is a hugely central and important part of your personal finances, and the kind of thing you should certainly make sure you are always paying close attention to. The truth is that there are all sorts of things you can do to ensure that you are going to have a good credit rating – but first, you may need to ensure you understand why it’s important.

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In this post, we are going to give you a solid overview of credit ratings, including pretty much everything you need to know about them – what they are, how they work, and how you can keep them as good as possible. By the end you should have a pretty good sense of how credit ratings can help you and hinder you.

What Is A Credit Rating?

If you are just coming to this with a completely novice understanding, you may be keen to know what a credit rating actually is in the first place. Essentially, it’s a score of your borrowing history, and it is used by lenders to form a picture of what kind of debtor you tend to be. If you have a poor credit history, it’s going to be looked upon unfavorably, whereas a good credit rating may make it easier to borrow money in the future.

Not that it is quite that simple, however. In fact, a lot of lenders will look for someone that has a less than perfect credit rating – because that means they are able to make some money through you via interest. However, good lenders, and the ones you would hope to support, will reward having a good credit rating more.

As you can see already, having a good credit rating really can make a lot of things a lot easier.

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Different Credit Score Providers

In fact, you don’t only have one credit score – you have several. That’s because there are a few different providers who provide lenders with credit scores on people. As such, if you are taking all of this seriously, you’ll want to make sure that you are doing all you can to keep on top of each credit score in turn. There are usually around three or four credit scores that you need to worry about.

Because of this, it can seem to get a lot more confusing. But essentially it’s all the same, and as long as you are doing all you can to keep your credit score high, it’s going to affect all of the providers similarly. Nonetheless, it is good to know about the different credit scores so you can ensure that you are on top of all of them.

What Are The Consequences Of A Poor Credit Rating?

The main reason you want to avoid having a poor credit rating is that you will find fewer lenders who want to lend you money. So it will be more difficult to take out lines of credit in future when that should become a necessity. For instance, if you want to get a car on finance or a mortgage, you’ll find that it’s much more difficult to get it if you have bad credit. At other times, you might struggle to get credit on good terms, but could still get it in some manner of speaking.

So as you can see, it can be quite a problem to have a bad credit rating. However, this is not the only problem that can arise. You might also find that banks look upon you less favorably, and you could struggle to open a bank account in future or switch accounts. These are just examples, and often they apply only to some of the worst credit situations out there – but it’s good to be aware of this if you are keen on trying to avoid this happening to you.

So enough of the consequences of having a bad rating – is it really the end of the world if you don’t have a good score?

Bad Credit – Other Routes To Borrowing

The good news is that you don’t necessarily have to wait to build up your credit score before being able to borrow. There are actually a number of other routes that you can consider, and you might find that you are able to improve things considerably if you are keen on doing so. The truth is that it’s still possible to borrow money for a variety of causes if you have a bad credit score. This doesn’t mean you shouldn’t try to improve your credit rating – you definitely should – but it does mean you don’t have to panic, as you have options available to you.

Let’s take an example to illustrate what we mean. If you want to buy a new car, you will often need to do this on finance – unless you happen to be able to afford the cost of the car in total, and you are happy to pay that. Generally, getting a car on finance means that you need to have a credit rating that lenders are going to be happy with – because you are essentially borrowing money from them to pay for the car.

However, if you have bad credit, you can explore bad credit car financing options instead. There are lenders out there who have credit lines available for those with bad credit, and are happy to lend out for this kind of circumstance in particular. So this is something that you may want to think about if you are keen on trying to get a new car but you have bad credit.

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That is just one example, but it shows how it’s possible to borrow even with a poor score. Having a bad credit rating is not the end of the world. You can also do this for many other things, such as mortgages and so on too.

Improving Your Credit Score

However, that being said, it is still a good idea to keep your credit rating high if at all possible, as it’s going to make it so much easier to borrow and you will find that everything is going to be a lot simpler financially and much less stressful. The good news there is that there are lots of ways to improve your credit score, and it might actually be easier than you think. However, there is no doubt that it can take time and patience to get there.

Regardless, what are some of the things that you can do to improve your credit score? Some of them are relatively simple. Signing up for the electoral register helps, as does making sure that banks and providers have your proper details and addresses. You will also find it helps to have as few lines of credit open at once as possible, as that can get in the way if you are struggling to build up your credit score. It’s best to only have one or two at most, most of the time.

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On top of that, you should consider paying off any debt you currently have outstanding, and doing so as a matter of urgency, especially any debt that has high interest. The sooner you do that, the better it will be for your score and the quicker it will rise. So this is something that you should certainly make sure you are doing. Once you have paid off all outstanding debt, you are going to be in a much better place already with your score.

It also helps if you have opened a line of credit, paid it off in time, and then closed it. This is the kind of behavior that lenders want to see, and it shows that you are likely to be someone reliable to lend to. So consider that next time you are thinking about opening up some new credit. You should also consider what you can do to ensure that your current debts have a plan for repayment.

Perhaps one of the most important things is to never miss a payment. This is one of the quickest ways to worsen your score. So if you can avoid missing any payments, you are going to have a much better score on the whole and it will really make a world of difference. If you think that you won’t be able to afford a payment, get in touch with your lender and let them know. Even this can stop it affecting your credit score, so it’s worth it.

As you can see, there are many ways to improve your credit rating.

Those are the main things you need to know about boosting your credit rating and generally ensuring that you are doing right by it. If you can remember all that, it’s going to help you a lot financially in life.