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Improve Your Credit Rating

By: EconomyWatch Date: 25 August 2009

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A low credit rating is detrimental to your financial health. Lenders feel uneasy to extend loans or finance transactions of individuals with poor ratings. Also, merchants and creditors hesitate to accept checks from them, as there is a greater possibility of dishonor. Hence, it is necessary to improve your credit rating.

Check Credit Reports to Improve Your Credit Rating

A common issue with credit rating is inaccurate or outdated information contained in the credit report(s). Hence, in order to improve your credit rating, you need to, first and foremost, acquire a credit report copy from all the main credit reporting agencies. Identify errors and communicate with the agencies to update the information. This could bring about a significant improvement in your credit rating.

Bear in mind that the letters written to the credit bureau should be precise and detailed. It is also advisable to send copies of supporting documentation with the letter as evidence. Such documents may include cancelled check stubs and payment booklets, which are stamped as paid.

How to Improve Your Credit Rating

Some important measures for improving your credit rating are:

You can improve your payment history by:

· Making bill payments on time. Set reminders to avoid missing out on due dates. Automated bill payments are also effective in this regard, which can be setup by contacting your bank.

· Clearing due bills as soon as possible. Make larger monthly payments to clear the dues faster and to reduce the burden of interest.

· Contacting creditors in case you face a payment difficulty. Communicate delays and establish a payment arrangement accordingly.

You can minimize debts by:

· Keeping your credit card outstanding low, ideally less than 30% of credit limit.

· Maintaining minimum open accounts, even if they have the same value.

· Not closing unused accounts, as zero balances are considered favorable.

· Not open new accounts, unless you seek to alter your debt-to-credit-limit ratio with them.

You can manage your credit by:

· Using a mixture of fixed and floating loans, and credit cards for financing. However, do not open new accounts just to create a better finance-mix.

· Making limited credit inquiries, since a large number of inquiries implies that you seek to open multiple accounts, which lowers the credit scores.

It is vital to bear in mind that credit ratings are not built overnight. The same applies to creditors and lenders, who consider a longer time frame for analyzing the credit history. Do not seek to improve your credit rating only when you have to acquire an immediate loan or mortgage. Maintain a consistent credit rating for sound financial health and better access to external funds.