In the early stages of institutional lending and borrowing funds, there was a lot of stiff competition. Every lender used different means to woe potential customer to borrow money from them. After the world war, many countries were left war-torn with no money for government borrowings.
The government of the countries in distress went to international banks to borrow money for the purchase of drugs and payment of salaries. For the first time, all the lender came together with one major concern; the ability of the countries to repay their loan.
To solve this puzzle, they developed a credit rating. It was a standard way to give a correspondent score to every borrower. This system is later adopted by individuals who wanted to borrow cash from banks and in the money market. One has to build his credit score to qualify for a high loan. This is a beginner’s guide to improving your credit score.
Pay all your loans in time
The first step to building your credit rating is paid all your loans in time. All lender have an agreement to keep a database of all their customer together. When this is done, everyone will be required to act in good faith and send customers’ loan repayment history.
The scale is divided into two major parts; the positive and the negative side. A person who does not pay his loans in time is given a negative scale. One is said to have been blacklisted. A person who pays their loans in a good time is given a positive rating.
The positive rating is further divided into three: the first part is for those people who pay their loans before the maturity date. The rating is excellent for such clients. The middle part is for those who pay their loan on the maturity date. The rating score is good. And finally, those people who pay their loans after the scale has blacklisted them are given an average score rating.
Improve your credit card balances
The baking industry is the major provider of your credit history information. All banks have gone digital with the introduction of the credit card. Credits cards today carries every important banking history a lender would want. It is the perfect way to know one disposable income.
The disposable income of a person is the amount of income that the person is willing to use at any time. It is the income that the consumer is not willing to save. The ration of saving to disposable income helps the lending institution identify the spending habits of an individual. The individual’s ratio should not exceed 30%.
If the ration exceeds the recommended ratio, it means that the person is experiencing imbalanced spending. One should find a good balance between his saving and what he consumes. The credit card balance should always be positive. This will show your ability to pay the loan. The balance should not exceed the amount of loan you intend to borrow to reduce suspicion over money laundering.