Improving your Credit Score
One of the major factors in determining the rate at which you can obtain credit (or even if you will be able to get credit at all) is your credit score. Therefore, if you are looking to refinance a loan you should make very sure that you know what your credit report contains and, if everything is not as it should be, take serious steps to rectify it.
Your credit score is simply an averaging out of various figures that have some bearing on your possible future ability/inclination to repay loans. These factors include things as diverse as having a fixed address to how many times you have applied for credit over a given period. The factors that can hurt your score the most are previous loan defaults or late payments.
A credit score is obviously a bit of a ‘blunt instrument’ as past performance is not necessarily an indication of future behaviour. There have, in fact, been a large number of cases where people built up excellent credit scores over a number of years simply to defraud banks of lots of money later on. (Talk about long term planning!) In spite of this credit scores will probably be with us for a long time since they are more or less the only alternative to lengthy personal interview every single time you apply for even the smallest amount of credit. Without them credit would also be much more expensive as banks would have to set up huge internal investigative divisions in order to vet every applicant.
You should, in light of the above, do everything in your power to make those three digits work for us rather than against you. But how do you do it, especially if you are in a hurry to refinance your loan? Three very basic starting points are listed below:
- Make sure you know what your credit reports contain. You are perfectly entitled to know what is in your credit report and how your score is calculated on the basis of the information it contains. You should therefore contact one of the credit reporting agencies directly, or consult on of online credit score checking services. Having the solid data in front of you will help you to develop a future plan action
- Challenge any errors and/or inaccuracies. There is no need to simply accept the contents of your report as ‘set in stone’. It may be that some debts may have been inaccurately reported as unpaid, or you may even have been the victim of identity fraud, where someone else obtained credit in your name. Whoever you requested the report from will advise you how to act in such cases. Challenging and correcting the contents of your report in this way can raise your score by several points in a relatively short period.
- Repair a bad report by doing the basics right. There is no easy way to say this but over the long term the most effective way to repair a bad credit report is to consistently maintain an excellent record of payments! It is possible that you will have to scrimp, save and sacrifice to do this but in the end the payoff will be excellent.
I realise that the points I raised, especially the last one, may seem easier said than done. However working to improve your credit score should be one of your top priorities as it may very well be your key to being able to refinance at a significantly better rate than what would otherwise have been possible.