Having trouble borrowing money? Do banks and other lenders see you as a credit risk? You might think you're in a place that's hard to get out of, but you're not. Being in a credit hole doesn't last forever, but it could take a bit of planning and some touch actions to fix. In this article, we're going to look at how to do it – so you can start getting accepted for loans and other financial products.
The one thing many lenders will look at when deciding whether you're a safe person to lend to or not is your credit rating. This is a file that's made up of all your past financial interactions, and it's a big thing in the personal finance industry. This article is a great resource if you’re struggling with getting loans or to improve your financial history. Let's have a look at why your credit rating is so important, what influences it, and then how to fix it…
Why credit score is so important
It's the biggest piece of information a lender has about you and how good you are with money management skills. While it might not go into too much detail, it will generally represent how good you are with money. If you're someone with a long history of paying back loans and other good money-management skills, you should have a good credit score. Alternatively, if you're someone who has struggled to make payments and generally has a poor history, you could have a bad score – and that's what many lenders will see when you apply. It could be the reason why you're getting rejected.
Looking a bit deeper than just your credit score, lenders might also be able to look at your credit file which will have details about missed loans or other evidence of your money management.
But you won't just have a bad credit rating from poor money management skills. That's the main reason, but it could also be low simply because you don't have much of a history of paying anything back. Lenders want to know their money is secure with you, and if you don't have much of a proven record of money-management and making repayments, they might not want to take the risk. As we'll see soon enough, this sort of poor credit rating isn't as much of a problem as a proven record of poor money-management and missing repayments.
What influences your credit score?
While your credit score might just be one rating, it's made up from a ton of different things. A lot influences your credit rating. If you've ever missed a repayment, this will negatively affect your rating. One thing that makes it really bad is if you've ever defaulted on a loan or had bailiffs round. This sort of credit score might be hard to fix (but not necessarily impossible).
If you are constantly in debt and struggle to make minimum payments regularly, this could be a problem. Some people think that being in debt can lead to poor credit ratings, but this isn't always the case. If you've been in debt but have always paid it off (sometimes more than the minimum) and never missed a payment, this shows that you're good with money. Lenders like to lend to these sorts of people.
Other things that influence your credit rating include how often you apply for loans and credit cards, how many different loans you have and what your general overall debt is like.
How to improve your credit rating
Since your credit rating is influenced by a number of different factors, there are lots of different ways to go about trying to fix it. Thankfully, a poor credit rating doesn't have to stay bad forever. That means that even if you keep getting rejected for loans and other financial products like credit cards, you can still make the changes to fix your score enough to start getting accepted soon enough.
How soon? That depends. Some credit rating issues can be fixed in a few weeks or months, but most will take a bit longer. You shouldn't view this is a quick fix. Even if it takes a year or more to sort out your credit score, this will put you in a better financial position than if you hadn't made the right changes.
Payback more than the minimum
Most people pay back the absolute minimum on their debt each month. If you want to set yourself apart, try paying back more when you can afford to. This shows good money management and should help improve your credit rating. One way to really fix things in a big way is to pay back an entire loan or debt completely, way before you needed to. Banks and other lenders love seeing this sort of behavior.
Get a better financial history
One reason many people don't get accepted for the loans or credit cards they want is that they simply don't have a history of using financial products like this. It's not that they've got a bad history, they just can't prove they're safe to lend to. So start building up a good financial history.
Use prepaid cards
You can start building a good financial history with prepaid credit cards and other similar products.
Don't apply for as many loans
If you keep applying for and getting rejected for multiple loans, your credit rating could suffer. Try having a break after a couple of rejections to give yourself a bit of time.
Consolidate your debt
Trying moving all your loans into one product to help get a better hold on things. This is good money management and could help your rating, too. You might want to consider online title loans.
Don't miss payments
Never miss a payment. This could be a disaster for your credit score. While one missed payment might not be a major issue, a history of late and missed payments could make you someone that lenders want to avoid. Not only that, missing payments and paying fees can be expensive, and could get you into more financial trouble.