A credit rating is an evaluation of the credit risk of a prospective debtor, predicting their ability to pay back the debt, and an implicit forecast of the likelihood of the debtor defaulting.
1. Figure out the key factors contributing to your credit rating
Your credit rating heavily depends on factors like;
- Payment and credit history
- Credit utilization- this is the percentage of your outstanding credit balances to your credit limits. It measures the amount of available credit you are using. For example, if your balance is Ksh 5,000 and your credit limit is Ksh10,000, then your credit utilization for that credit card is 50%.
It is advised that you pay attention to your credit utilization percentage as a high ratio can reflect poorly on your credit score.
- How old are your credit accounts
- All your credit accounts combined
Any negative performance in any one of these key points may impact an adverse effect on your credit scores.
2. Get that report
Improving your credit rating without a credit report is like driving in a fog. Get all the facts right, that are up to date too. This report can be provided by a credit reference/rating bureau in your country. For Kenya, we have metropol corporation that gives a report at a fee.
Having an up to date report allows you to have a full picture of your credit status it’s also important as it allows you to dispute any discrepancies with your credit.
3. Create a credit tracker
Once you have all your credit information with you, it’s important you create a tracker that allows you to track all your credit obligations. A tracker can be a simple spreadsheet or excel showing the following;
|Nature of debt||Pending balances||Paid amount||Defaulted amount||Ineterest charged|
4. Re-negotiate your credit
Calculate what percentage of your debt you owe to each creditor. Divide your lump sum up among the creditors using those percentages. You can’t offer more than that amount for each creditor while negotiating.
You have the right to renegotiate your terms with your lender to a more flexible and workable payment plan. Do not sit in silence while you default your credit, have that conversation with your bank/ financial service provider.
Put your agreement in paper and have both parties sign yo the agreed terms. Don’t just have a phone call or a face to face visit with the trust that the person in charge will act in good faith get all the term in writing. If possible, have the exchange of conversation via email or text messages for future reference.
5. Commit to repayment
What most lenders want is commitment. No one wants to work with someone who least shows the commitment yo repay their credit.
Once you have renegotiated your credit terms, show some commitment by paying on time, the agreed amount.
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