As previously discussed, an understanding of credit ratings and the way in which they affect your financial options is essential to establishing a positive financial future. We have now discussed the basics of credit ratings – what are they and what factors are taken into consideration when calculating a person’s credit score. Now we are going to look at what these numbers mean for a person’s financial options now and in the future, as well as ways in which an individual can work to improve their credit rating through basic financial activities.

Why is my Credit Rating important?

Credit ratings are important to borrowers because of the way they are used in lending and other business decisions.  A high credit rating is a forecast for positive long term financial behaviours in the future and indicates that you are capable of meeting your financial responsibilities. The higher your credit rating, the lower the risk you present to financial lenders. This is important for borrowers because the lower the risk of default, the more likely you will be improved for credit and the more favourable the terms. A bad credit score can have a lasting effect a person’s borrowing capacity and can cost them in numerous ways including higher costs of borrowing and missed opportunities from the inability to obtain the desired level of credit.

How can I improve my Credit Rating?

There are a number of ways that person can work to improve their current credit score, but like most important things in life, establishing a good credit rating requires time and dedication.

1. Get your finances in order: Make sure you are aware of all existing lines of credit or debt accounts under your name. Being proactive about your financial knowledge will ensure that you don’t receive any surprise bills or miss any unknown repayments.

2. Make the repayments: Making regular, on time payments on all existing debt and lines of credit is a good way to establish a positive credit rating. Setting up direct debit payments on bills such as rent, internet, phone and credit cards can lessen the chances of accidently missing a payment. If you have any overdue accounts you can contact the lender in question and pay them. Your credit file will then be updated and your credit rating will adjust accordingly.

3. Establish long term credit relationships: A longer credit history provides more information and offers a better picture of a person’s long-term financial behaviour. Therefore, to improve credit scores, an individual without a history should begin prudently using credit as may be required, and those with credit should maintain longstanding accounts with lending providers. By dealing exclusively with lending providers that operate under responsible lending practices you are ensuring that you maintain long standing patterns of on-time repayments and establish a positive credit history for the future.

A good credit rating can potentially save individuals thousands of dollars in future financial ventures. By making a few adjustments to current borrowing behaviours an individual can take responsibility for their financial prospects and ensure a wider range of credit opportunities are made available to them. Educating yourself on credit ratings is the first step in ensuring long term, sustainable financial security; now and in the future.