Establish your credit rating.
Your credit rating is important to your financial health. Good credit ratings mean that lenders will lend you money for items you wish to purchase. Home loans, car loans and credit cards are issued on the basis of a good credit rating.
When starting out, it is important to be able to get the major purchases in life. You must establish your credit rating before you apply for major loans. The best way to do this is to talk to a bank manager about establishing a credit rating.
Your bank should be able to setup a small loan account at a low interest rate. Most banks will want you to apply for a credit card instead of applying for a loan. Do not do this. The banks earn a percentage of the credit card fees and charges without incurring the risk. This is why they want you to get a credit card.
Establish your small personal loan with them. Let’s say you borrow $500.00 in the form of a personal loan. This will most likely be over a period of one year at a low interest rate. Your repayments will be around $55.00 a month. This is hardly a financial stretch
Take your $500.00 and invest it at another bank. Get a term investment account that lets you invest the money for a year. Your interest earned will not be as high as the interest charged to you, but it will off-set the cost of your borrowed money.
Pay your loan back to the first bank with money you earn during the year. Make sure you meet the repayments on time, every time. This is your credit rating we are establishing here. It is the ability and readiness to repay, that financial institutions are concerned with. One error at this stage will mean a down grading of your rating.
At the end of the year, you will have met the terms of the loan and established your credit rating. You will also have savings of $500.00 plus interest earned. Different rating agencies will score you using different formulas. Most agencies use formulas calculated on the history of your borrowing and any information gained from data mining. Data mining is a process of research done by companies about your spending habits and store card information.
Lending from major banks carries the most weight in these formulas. If you feel confident in your ability to repay loans, you can repeat the above process for larger amounts. This also increases your credit score.
Guard your credit rating closely. Enter into joint loans with the upmost of care. Many people have had their credit rating destroyed by a partner in a failed marriage, or failed business venture. Always seek legal advice if you are to put forward your credit rating in joint ventures. Sometimes the use of structured entities such as companies or business entities is a better way to obtain finance on a large scale. You should talk to your financial adviser about this.
Starting out to obtain a credit rating is a very important part of securing your financial future. To create wealth and stay debt free, you will be using the services of lending institutions. These institutions will only lend money based on sound financial lending practises. Make sure you have your budget in place and your credit rating in good order before you apply for a loan. Start small and build your loan amounts. Do not obtain loan money without knowing that you have a built in safeguard for repayment. There are some insurance policies that can cover this aspect for you and we will discuss this in future articles at Debt Support Center.
Now, go get your credit rating
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