Before applying for any kind of loan, you’ll want to make sure you’re in the position to qualify for it first. Your credit rating is the first thing any financier will check before even considering you as a debtor. Best you do the same before offering to be one.
Your credit rating is based on your credit history which lists every past loan you have or haven’t paid off. If you’ve ever filed for bankruptcy, this will stay on your credit report for up to 10 years. Your credit report is your financial history and allows creditors to see whether you’re a high risk and likely to default on payments. By knowing where you stand with creditors, you can improve your credit rating by tending to all the black marks on your history.
Your credit history determines your credit rating. Your credit rating is the number assigned to you to sum up your history as either a low or high risk. It’s composed of a number of components:
- Payment history (35 percent of the overall rating)
- Amounts owed (30 percent of the overall rating)
- Length of credit history (15 percent of the overall rating)
- New Credit (10 percent of overall rating)
- Type of credit used (10 percent of overall rating)
Obviously if these factors change quite proportionately, the adjust your credit rating. You are in charge of each of these factors. Big changes in your credit rating are usually negative (such as being blacklisted) rather than regular payment or long history or
debt settlement.
While it is more difficult to improve your credit rating, than it is to weaken it, by reducing the amount of debt you currently owe. This too will reduce the amount of interest you pay. Also avoid taking on more debt and concentrate on paying off your current loans. Pay the full installments, pay them on time, and keep repayments between 20 and 30 percent of your income. This will help improve your history and your credit rating.