Understand And Improve
Your Credit Rating
Economic turmoil across the world has led to the fall of the greatest companies and banks which were once considered immortal. Life has changed suddenly, but the lifestyle of people haven’t. With the quick availability of loans people have immersed themselves into consumerism. They do not care about their earnings but depend on the credit card for the purchases.
The economic downturn has resulted in job losses and pay cuts. People are forced into a situation where they are unable to pay their dues and the debt keeps rising on them. This has affected their credit rating and their credit ranking scores which enjoyed the excellent status has turned into bad credit.
Let us understand the credit rating in a better way so as to maintain the credit ranking scores.
Credit scores are the parameters for judging the credit worthiness and credibility of an individual. This basically shows the likelihood of an individual turning to the creditors after taking a loan and repaying the amount.
Lenders largely depend on the credit scores for making their underwriting decisions. Credit score of an individual is dependent on many factors of which some of the pertinent ones are given below:
- Credit history
- Request for new loans
- Repayment history
- Delays and defaults
- Prepayment of loans
- Loan settlement
- Foreclosures, bankruptcy
Credit repair should be taken up if one finds that there is a significant drop in the credit score of an individual. There are various ways in which the credit repair can be applied and carried out:
- There has to be a balance between your income and the expenses. Monthly expenses should never exceed 40% of your income. In fact banks also look at this figure while making the lending decisions. So calculate your status and if it is beyond 40%, you need to work out on the ways to cut that extra flab. One can take up several ways like reducing expenses without which you can comfortably live like entertainment, eating out etc.
- Lending bodies generally take an average of the credit scores provided by all the three major credit bureaus namely Transunion, Equifax and Experian. One can get the reports from each of these bureaus for no cost once a year. A thorough analysis of the credit reports may reveal wrong entries and transactions which will need to be removed. Removing them can enhance your credit ranking.
- Late payments must be avoided by any means possible. Maintain regular payments as event the minimum due amount payments will show that you are concerned about your dues.
- If you enter into an agreement with the credit repair agency, ensure that you have read all the terms and conditions and understood its implications better. Missing on any of the details can prove to be counterproductive in your effort to enhance your credit rating.
- Ask for the settlement letter of your debts from the credit repair agencies, and keep the documentation properly. This might be required in future when you apply for the loans.
The above steps will help you get your credit score well within the controllable limits and back on the path of recovery of the same.
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