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How to improve your Credit Score Rating

By Ruth Racey
Published: Sunday, September 20th, 2009

Credit score rating as method of determining an individual’s creditworthiness is universally applied, though the term used may differ from country to country. In some countries, employers sometimes even use an applicant’s credit score rating in deciding whether to hire them or not. This is because they see people buried in debt as risks to the company. To lending institutions, the credit score ratings is a must. It provides basis for accommodating or rejecting a loan.

Credit score rating is based on an applicants’ credit history, which includes the types of loans taken out, payment patterns, unpaid and current loans. Applying standard ratios; the overall credit score rating may range from 350 to 850.

A high credit score rating can provide collateral-free low interest loans with possibly long repayment periods. Those getting low scores will most likely have their loan applications rejected, or if approved subjected to harsh terms such as high interest rates and with collateral.

There are, however, a lot of ways to improve credit rating. Spending less on luxuries and concentrating on essentials is a good way of ensuring that debts are paid and on time. A lot of people also have the tendency to secure loans simply because they are available. Exercising restraint in not getting fresh loans while there are still unpaid ones is another good way to prevent falling into debt. This involves a few sacrifices, but certainly getting a higher credit score in the future can pay dividends. It can allow the person take out bigger loans at more favorable rates at a time when they most need money.

Credit cards when used injudiciously can be a debt trap. Keeping not more than two credits cards seems a very good strategy for keeping away from debt. The first one should be the main card for normal purchases while the other should only serve as a back-up. However, pay the entire balance when it falls due and not the minimum payment required. The reason why thousands have accumulated mountains of debt is because they forgot that interests tend to accumulate fast. For people who have unpaid loans up their necks, greater sacrifice may even be needed, like selling assets to settle obligations.

There is still an easier way of getting a higher credit score, but it is definitely not the best solution. It is possible to negotiate with creditors to retire old loans by converting them into new loans. The balance is recorded as new, which makes the credit history a little better. Moreover, keeping a tight rein on spending habits will definitely improve one’s credit score rating sooner or later.

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