Why Is Your Credit Rating Important And How To Check Yours

why-is-your-credit-rating-important-and-how-to-check-yours

No matter how much we deny it, money does play an important role in terms of leading a comfortable life. And, as the situation demands, sometimes you might need to borrow or apply for a loan- – to buy a car or a new house for your expanding family, send off your kid to college or start a new business venture. Whatever the case may be, your chances of getting a probable approval for the loan hugely depend on your credit score rating.

Why is your credit rating important?

Since so many people apply for loans on a day-to-day basis, lenders have to be very careful about who to trust, especially when the amount in question is substantially large. For the same reason, lenders use the integrity of your credit report to decide the 3 main aspects of the loan, i.e.

  • Approval or rejection of your loan application
  • Amount to be loaned
  • Interest to be levied

Your credit rating and imposable interest rate are inversely proportional. So, it follows that better/ higher credit score will lead to lower interest rates and poorer/ lower credit score will lead to higher interest rates.

What are the factors that impact your credit rating?

Many activities can positively or negatively influence your overall credit rating.

Positive factors:

  • Paying your bills on time
  • Owning multiple yet just number of credit cards
  • Maintaining a fair leftover limit (~ 30% of your total credit card balance)
  • Managing your debts responsibly (i.e. paying your monthly installments on time)
  • Using all your credit cards in balanced proportions

Negative factors:

  • Overstretched debt limits
  • Inconsistency in payments
  • Applying for too many credit cards
  • Having dormant credit card accounts
  • Erroneous credit reports
  • Inability to provide a valid electoral id
  • Conjoined account with a person with poor credit history

How to check your credit rating?

Luckily, checking your credit rating is fairly easily. However, in case you are not aware of the same, here are some ways that you can use to check your credit rating:

  • Check your credit card statement

Since the credit card market is very competitive, many major companies have now started including the user’s credit scores in their accounts. All you have to do is log in to your account and check your monthly statement.

  • See a non-profit counselor

In case your credit score is not directly available from your credit card company, you can approach a non-profit counselor. Most of these counselors provide a free credit report and can even help you review them for factual accuracy.

  • Check your score on credit reference agencies

There are 3 main credit reference agencies- Equifax, Experian, and Callcredit. Out of these 3 agencies, Equifax and Experian provide a 30-day trial so you can check your credit rating for free. While you will have to provide them your full debit and/or credit card details, there is nothing to worry about as these agencies are fairly trustworthy. Callcredit, on the other hand, provides a lifetime free service.

It is advisable to get your credit report from all three sources in order to avoid any discrepancies. Moreover, since all agencies collect information from different lenders, the result you get will be far more satisfactory and beneficial in the bigger picture.

How to fix faulty credit reports?

There is nothing riskier than a faulty credit report. Lenders see erroneous credit reports as lack of trustworthiness, and thus instantly reject such reports. So, it is best to thoroughly review your credit reports before submitting them to your potential lenders.

In case you or your lender finds any mistakes or discrepancies in the report, you can ask your credit reference agency to review the report from their end and make the necessary corrections.

The agencies then re-submit the report within 28 days, approving or rejecting your proposed changes along with detailed reasons. During this time, the information under investigation is marked as ‘disputed’. Moreover, the disputed information cannot be used by the lenders to reject your loan application and you can ask them to hold their decision for the time being.

You can also ask your agency to add a short statement to your credit report in case your report includes a reference that is no longer relevant to your current situation but can negatively impact your loan application. This statement is called ‘notice of correction’ and includes the details of your previous situation and the ‘how and why’ it no longer applies to your current situation.

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