How to Improve Your Credit Score

As people start out on their working lives they need to establish themselves financially. One important aspect of this is establishing that you are worthy of credit for any number of different purposes – a home or car purchase, or even a small business loan. However, it has become more difficult recently to obtain credit.

The worldwide recession was a result of subprime mortgage lending. Doubtful mortgage approvals were the order of the day as the value of real estate continued to rise without pause. Where was the risk? The Collateralized Debt Obligation crisis showed exactly where the risk was held and it left the real estate sector in turmoil; foreclosures and negative equity were the result! Everyone still aspires to own rather than rent a home, but the criteria for getting a mortgage approval have become stricter. What this means it that everyone that wants to make a home mortgage application must look at their credit scores. It is very important that one do all they can to improve their score where there are obvious deficiencies. Now could be a good time to borrow as interest rates remain low. So, how does one go about obtaining loan approval?

The Inner Workings of Credit

It is unlikely that most people will ever seek a bigger loan than the one for their home. So, individuals must make sure they understand mortgages and how to get the one that best suits their circumstances. First of all, they need to know how credit works; in every case they need to ensure that they will be regarded as a good risk. That involves their borrowing history identifying previous realistic loans and demonstrating their reliability in repaying those previous loans.

Bureaus

This is information that prospective lenders can obtain from credit bureaus when considering a loan application. Credit Bureaus have a statutory obligation to provide a free report annually and everyone should take advantage of that. Some credit card companies have also begun including your credit score on your monthly bill. It is important that if there are any inaccuracies they are reported and amended. It could be the difference between an approval and a rejection of a requested loan. Indeed, these reports, which are used to provide a credit score, may also influence decisions on job applications and even insurance!

Improving a Score

First of all, it is possible to improve your credit score. Your credit score is the reference that lenders will use often rather than read through your complete report. The layman is unlikely to be able to understand the calculations that produce the actual credit score, but there are themes that should be understood when working to improve your score.

Ironically, young people that perhaps are going for their first loan, may find that they have little to no credit history. Little to no credit history means a low or possibly no credit score! It is almost ‘guilty until proven innocent.’

The good news? A credit score can be improved, but it takes time. Anyone that is considering trying to improve their credit score should ask if their credit card company reports to credit bureaus (almost all will of course). One good initial move is to get a secured credit card and ensure that the regular monthly payments are made to clear that month’s purchases. They are easy to obtain because they involve depositing money as surety against default. It may help to stay well below the limit just to give the added impression of financial responsibility.

If an application goes in with a co signatory that already has a good score the applicant will benefit from that score. This can also help to improve your credit score over time. Similarly, if someone without a credit score can be added to a parent’s card that will start to build a score. This is the method I used while still in high school to help build my credit history and credit score. Every little bit helps – even a purchase of furniture on a small monthly payment plan or a gas station card. Every time payments come in on time the credit score will improve. A small loan with regular monthly payments that runs properly certainly helps.