This tutorial will answer the following questions:
What is credit rating?
A credit rating is a number showing your financial risks. It is derived from the credit report, which is a record of all your financial activities. Credit report databases are maintained and updated by reporting agencies, who also sell the reports to anyone interested.
Your credit report contains a lot of your personal information. This includes your name, phone number, address and previous addresses, date of birth, employment information, social security number and your spouse’s name. Information on your past and current accounts including lines of credit, credit cards, personal loans and mortgages will be in your credit report. In addition, your report will have data that is accessible in public records including tax liens in your name, bankruptcy records, overdue child support payments and monetary judgments against you.
Who is interested in your credit rating?
Your credit score and credit history, bad or good, will follow you for the rest of your life. Your credit report will be used by lenders to determine whether they will loan you money and at what interest rate. Credit reports are also being used by various service providers and even employers. Many people are unaware that many aspects of their lives are affected by their credit report and their credit history. It is crucial that all consumers know and comprehend the basics of how their credit is determined and how their credit reports can be used.
Lenders are the ones who very frequently will pull your credit report. They will look closely at your credit score, credit report and your credit history before they loan you any money. They look for a good credit score, as well as your history to establish your ability to pay back money loaned to you. They want to know if you have a history of paying bill on time. They will also want to know if you owe creditors any money and how much. Each creditor you have an account with report to credit bureaus regularly what you owe and the status of your account.
In many cases, service providers and even employers will have an interest in your credit report. For instance, most insurance companies set your insurance premiums based on your credit score. They use your credit score to help them assess your risk. As a result, your premium is likely to be higher if you have bad credit. Other service providers, like cell phone companies, use your credit report to determine whether they will give you a contract or what kinds of contract they will offer you. Some employers are using credit histories to help them decide which employees to hire.
All consumers should be concerned about their credit score and their credit history. Each year, you are entitled to get a free copy of your credit report. Periodically, it is also important to get a copy of your credit report to ensure that it has no errors. Quite often, reports contain mistakes that can be easily rectified by contacting the reporting agencies. In addition to the credit report, you also have a right to get information about your credit score. However, you will be charged a small fee to get the credit score.
Rebuilding or repairing your credit history is a necessary task for the people with bad credit reports. If you take the correct steps, you can start rebuilding your credit very fast. The following are steps you can take so as to start rebuilding your credit.
Most times when you get in trouble with credit, it is because of excessive spending. Before you can really begin to rebuild your credit, you should take the necessary steps to reduce your expenses. This way, you protect yourself from getting into the same situation in future. Cut down on as many unnecessary expenses as possible.
Many people with bad credit wrongly believe that credit should not be used again in the future. If you want to repair your credit score, you will have to continue using credit. You should open some credit accounts but use your credit limits sparingly. This will help you rebuild credit quickly.
When you have bad credit, it may be difficult to get approved for traditional loans or unsecured credit cards. One alternative that you could consider is obtaining a secured credit card. This is a credit card which has a balance backed up with a kind of security. You might have to deposit some money with a creditor before being issued with a credit line. When you use a secured credit card, you could make small purchases and then pay the balances every month. When you get in the habit of making regular payments, you will have the ability to repair your credit score very fast.
Don’t Keep High Balances
If you have any credit card balances, you should make an attempt to pay them off as fast as possible. Credit balances which are close to your credit limit can be detrimental to your credit score. You should get the balance paid down to less than 30 percent of the total credit limit so as to start improving your score. Make it a habit to maintain your balances below this level.
Check Your Credit Report
You should get a copy of your credit report and take time perusing it. Very often, people with bad credit have negative comments on their credit reports. If you find any omissions or errors, you should act to have them removed from your credit report. If there is an error, contact the credit bureau as well as your creditor. Explain what exactly the problem is and then mail them a written documentation of the error. Quite often, they will make the required changes for you, and this may improve your credit significantly.