For Americans, having a loan or debt is practically a usual part of life. We have a variety of credits to assist us in our expenses such as house and car mortgage, school and educational expenses, and even credit card usage. It is one unavoidable fact that we have to face in our life. Especially now that we are facing a recession in the economy, more and more people are getting hooked up on cash loan obligations. We have a responsibility to pay promptly our loans so that we can maintain a good credit rating, but there are also unavoidable circumstances that we can?t pay our loans on time. That?s why we sometimes end up having a low credit rating which may affect our reputation in paying our debts. How to improve bad credit to good credit rating and how long does it take for it to be restored in preparation for your next loan? In this article, we will try to tackle more on how to improve your credit rating by acquiring credit and debt counseling as this is one of the common situation that most us face nowadays.
Understanding What Credit Score Is:
Before we proceed further on how to improve your credit rating, we?ll try to understand first the concept of credit score. Since time in memorial, the history of man having a credit can be traced hundreds, even thousands of years ago. Every ancient civilization has their own way of giving credit to any individual or group in need. The payment for the loan may be in a form of goods or it could be a service rendered for the debtor. The credit score, however, has just been invented recently. The use of this method was introduced by Bill Fair, an established engineer and Earl Isaac, a mathematician. They have come up with the Fair Isaac Corporation formula, a secret formula in calculating the credit score or rating of a borrower. Ideally, it is recommended to maintain a good credit rating so to attain the highest standard of living. Having a high credit score also helps in getting low interest rates in credit card and other loans. Apart from that, it is also a determining factor that employers look into when hiring someone for a job. That?s why it?s important to pay on time so that the high credit score will be kept. This is the ideal situation, but in reality not all is ideal. That?s why there are more people having a bad credit rating than those who have good credit ratings.
Will Counseling Help In Improving Your Credit Rating?
8 out of 10 financial experts agree that credit counseling really helps. Unfortunately, there is no specific time frame in repairing or improving a bad credit score. The period of the negative rating depends on how many debts you owed and what are those types of debts. These data that affects negatively into your score usually last for up to seven long years, or more in some extreme cases. Counseling can help you widen your perspective so that you will know what?s the best move to make. There is, however, a slight solution in increasing your credit score just a bit by paying promptly for the next 6 to 12 months. The amount that you have payment will be tallied to your payment history and this is an important component in calculating your credit rating. It counts as 35% of your total credit score.
Another solution on how to improve your credit rating is to quickly pay off a specific debt. This counts almost the same as the payment history by 30% of your credit score. Other factors that can affect your credit score are how much credit you have applied for recently (10% of credit rating), what type of credit you have applied for recently (10% of credit rating), and how long you have used credit (15% of credit rating). A simple example of this is when you have applied for many credit cards in a specific period of time. When this is evaluated, it will give an impression that you are in dire need of financial assistance during that time.
Conclusion:
It?s really undetermined how long it will take to improve your credit rating. But still there are some small remedies to raise the credit score so that it could bring back your credit reputation. And with a good help from a credit and debt counseling, rest assured you?ll be back on track in preparing for you next loan. Hopefully, you have gained more knowledge through on this article about how to improve your credit rating.
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Source: http://zerotom.net/the-importance-of-a-good-credit-rating/
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