Nowadays, monitoring technology for all credit applicants looks not only at the potential customer’s own personality, but also at his or her credibility with regard to the planned cashback. It is this borrower’s level of conscientiousness that has been dubbed the “credit rating . “
What makes a credit rating?
A credit rating is a numeric indicator that describes the degree of reliability of a person trying to apply for a credit. Knowing this figure does not make it difficult for the creditor to decide on the application submitted (approve the loan or refuse to issue the money).
A credit rating is calculated using a very sophisticated mathematical formula (automatically) that contains a range of information about the next borrower. The resulting credit rating helps employees of financial organizations predict future customer behavior and determine the quality of their money-back quality. In the Western countries, a credit rating is called “credit rating” and is calculated through a special program. On the basis of this calculation, the creditor obtains a specific score which reflects the applicant’s creditworthiness. In other words, the western “credit rating” is our “credit rating”.
The main factor that influences a borrower’s credit rating is his or her credit history, but if there is none, then socio-demographic factors are used as data: position, job, marital status, number of underage children, age, salary, additional sources of income, seniority and residence of the applicant. Of course, such a client’s analysis only gives an indirect indication of his financial position and is therefore called ” borrower scoring “.
Some lenders use both borrower rating schemes to protect themselves: credit rating and borrower rating.
How to Raise Your Credit Rating
You will be able to upgrade your credit rating if, first and foremost, you fully and conscientiously fulfill all your debt obligations. But that does not mean that with a minimum credit rating you have to run to any bank as a matter of urgency and get the first loan that has ever happened on the way. Credit rating corrections must be approached in a very balanced and rational way.
Here are some tips to improve your credit rating :
- When making any credit offer, a bank specialist will inquire about which month of the month you will be most comfortable with making monthly payments. Choose the next day after you receive your salary. This way, you will have the opportunity to pay off the loan first and then spend the remaining amount on all other needs.
- Try to use credit offers from only one organization.
- Cover your debts with credit cards as much as possible. You must always have a credit line amount in reserve.
- You can try to get a special loan from a microfinance organization to increase your credit rating . Some investors are focused on correcting this.
- Do not give up credit lines after they have been fully repaid. When looking at your application as a borrower, this nuance will have a positive impact on your credit rating. Most often, this rule applies to credit cards, just give back all the money you have on “credit cards” and not hand over the card itself. If a creditor sees that you frequently use a credit card and repay it on time, it will positively affect your credit rating.
What constitutes a creditworthiness indicator?
The process of determining the size of your credit rating analyzes key aspects of your financial behavior.
- Quality of commitment . The main part of your credit rating (35%) depends on how conscientious you are in handling your existing liabilities. If the repayment is often deviated from the schedule, the index will approach zero. If the amount of late payment and the delay in payment itself are insignificant, the creditor may not attach great importance to it. Note that such delays could also be due to the bank’s own malfunctioning. But only your credit history remains on your credit history, so be prepared to confirm the timeliness of your transactions. A bank employee may also be attracted by the motive for repaying the loan (either on his own initiative or as a result of a court judgment).
- Amount of outstanding debts . 30% of the credit rating depends on the amount of late payments by the borrower. The creditor will take into account “old” and already repaid debts, but existing delays may have the most negative impact on the rating.
- The age of “credit history” . About 15% of a credit rating is attributed to credit experience. Undoubtedly, the absence of such ‘seniority’ is not a good indication. For a positive outcome, the borrower should have at least one credit that he successfully repays.
- Category of drawn loans . Of course, paying off a TV on credit is much easier than dealing with a 10-20 year mortgage, so take this into consideration. It is important to the lender how much of the credit “burden” you deal with. If the loan repayment period is relatively long but the amount is increased, you may assume that you have a high credit score.
- Regularity of loan application . The credit history reflects not only the credits applied but also the applications submitted. If the customer turns to the banks often enough and the loan is not processed, the question “why is he being denied all the time?” Is obviously a negative factor in calculating a credit rating. Likewise, such behavior is indicative of a person’s impulsiveness, most likely because he or she is unable to rationally plan his or her expenses or is constantly in a difficult financial situation.
A credit rating for any potential customer is his financial exposure. Therefore, it is better to check your credit history once again and correct any deficiencies than to get a creditor refusal again, to the detriment of your credit rating.