Finances

Understanding Credit Scores and Credit Ratings

*This is a collaborative post

 

You learn a whole lot during your time in compulsory education. But for some reason, we aren’t ever shown how to manage our personal finances. This tends to be something that we have to figure out for ourselves. Now, relying on trial and error can be relatively problematic, as making major mistakes with your finances can really affect you in the long run. While you can get along for so long by receiving wages, paying bills, and spending whatever is left, this isn’t all too good for your credit score – your credit score simply won’t exist and sometimes this can prove equally as bad as having a negative credit score. At some point or another in your life, you’re likely to have to borrow money from a professional lender, and having a positive credit score is the only way that you will be able to access this cash. So, let’s take a moment to fully understand what a credit score is and how you can manage yours effectively!

coins

What Exactly Is a Credit Score?

A credit score, otherwise referred to as a “credit rating” is a financial tool that professional lenders use to determine whether they should consider approving any financial services you may have applied for. This can include credit cards, loans, finance plans, and mortgages. If you take out a small loan and keep to the terms, making payments on time and clearing the debt as you have agreed to, your credit score will go up. If you miss payments, exceed your credit limit, or fail to pay debts back, your credit score will go down. Essentially, your credit score or rating reflects your financial management and behaviour and shows how trustworthy you are when borrowing money.

 

Do I Have To Borrow Money to Improve My Credit Score?

To put things simply, you do have to engage with lending in order to improve your credit score. Many people make the mistake of thinking that they appear financially responsible if they live within their means and never have to request money or financial support from others. While this may be true, you also have to bear in mind that you are likely to have to take out a loan at some point down the line. A mortgage is a loan and it is highly unlikely that you will purchase a property outright, so you are likely to have to take one of these out at some point or another. Now, if you look at things from a lender’s perspective, you may have been responsible with your own money along the years, there’s no proof of how you deal with others’ money. Why would they borrow you such a huge amount of money for a mortgage with no evidence that you’re likely to pay them back?

 

Getting Started

So, we have established that you need to borrow to be approved for credit. But how do you get started? The answer is to start out by taking out a small loan or a credit card with a low credit limit. While you may not have a credit history, lenders are likely to give you a chance with very rigid limits to start with. Use a site like www.creditraters.com to see the different small scale loans available on the market and to see which you might be approved for. If you pay the loan back as agreed or use your credit card responsibly, your score will go up. The provider you have chosen is likely to increase your limits or offer further loans and other providers will be more likely to approve you!

 

Keep On Track

The key from this point onwards is to keep on track. Maintain your responsible behaviour and keep proving yourself to lenders. Improving your credit will take a relatively long time and it may well feel like a drawn out process. But if you stick at it, your score will slowly but surely become brilliant.

Sure, credit scores and credit ratings may seem relatively complex and daunting at first. But as you can see, it’s relatively simple to test the waters of borrowing and boost your score at the same time! Implement the above steps into your financial plan as soon as possible and everything should go swimmingly!

Leave a Reply

Your email address will not be published. Required fields are marked *