Creditworthiness is a rating of an individual’s ability to pay off their debts, such as loans, invoices and rents. The value of the credit is used by lenders to assess the ability of the borrower to pay. Having a good credit rating is an important factor if you want to borrow directly. The grade is not unique to private individuals but is used both for companies and countries. A person with a low credit rating is seen as a risky investment for lenders and is therefore more difficult to find a loan.
What determines my credit rating?
There are many factors that determine a person’s credit rating. All credit reporting companies use different, but similar, methods and models to the credit rating of a customer. The companies make their assessments using statistics, history and personal data, among other things, to arrive at an image of the customer’s credit rating. They usually rely on data from the Swedish Tax Agency, the Crown Commissioner, credit card companies and other sources and authorities.
Banks usually use the Credit Information Center’s (UC) credit report to make their assessments. UC is owned by the big banks and therefore has a very broad register of customers’ financial situation.
The following are the most important factors when banks and lenders calculate your credit value:
The first and one of the most obvious factors in the analysis is, of course, the borrower’s income. This can be anything from salary, to funds and shares. Lenders collect information on how much you have declared over the past 3 years, as well as the individual’s current assets and income. Some also require a certificate of employment.
The other factor that is calculated is fixed expenses. There, the borrower’s costs and expenses are calculated on a monthly basis. By comparing your income with your expenses, the lender can get a picture of what your finances are capable of. Housing costs are usually the largest expense, but they can vary depending on whether you have tenancy or tenancy rights. In addition to the housing, there are several guesses and generalizations depending on the life situation such as children, divorces and future loans that they use to calculate your disposable income and if you will be able to afford to repay the loan.
The third factor that underlies your credit rating is your current credits such as fast loans, mortgages or consumer loans. Amortization and interest are included in your fixed expenses when you have to pay them. But the lender also looks at your past credits and how well you have handled them. Late and non-payment is considered very negative. It is therefore important to keep track of their expenses and ensure that they are paid on time.
Last of the factors in your credit rating are based on your life situation and how stable it is. For example, a couple who has had permanent employment for a longer period and who has lived in the same accommodation is seen as much more stable than a single individual without permanent employment or housing. But they also look at whether the household has, or will soon have, children, as these involve an expense.
How can I improve my credit rating?
When you apply for a loan, banks and other lenders will, as I said, examine your credit rating before you can get your loan approved, unless you choose to take out a loan without a credit check at UC. There are several methods and tricks you can use to improve your credit rating that you should consider before you start looking for a loan.
Check your own credit rating
A good first step when it comes to applying for loans is to check their credit rating before lenders do. By reviewing it yourself, you can verify that all information in the report matches the reality. If the report proves to be incorrect, you can report this to credit reporting companies such as minupplysning.se to correct the mistake.
Reduce debts and credits
If you have old loans and credits, it may be good to start doing something for them before you start looking for loans. A credit report from UC shows how many credits you have and how much they are on. A good way to reduce the number is by accumulating loans and credits. The smaller and fewer debts you have, the better your credit rating will be.
For the same reason, you should also be careful about the number of credit requests you have. Many credit inquiries raise the eyebrows of lenders, so they should be kept to a minimum.
Strengthen your finances
Easier said than done you can say, but by increasing your income or lowering your expenses you can see a clear difference in one’s creditworthiness. If you have a strong economy, it is even more likely that you can take out a loan without collateral.
Do not move too much
A person who moves around a lot is seen as a riskier investment than a person living in the same place. The lender believes that the number of moves says a lot about a person’s life situation, which in turn affects the creditworthiness.
Avoid payment remarks
Payment notes are unpleasant creatures and they greatly affect your credit rating. They also remain in the register for a full three years before disappearing. It is therefore very important that you try to keep them away as best you can. Therefore, do not take more loans than you can manage, especially if you want to borrow despite previous payment remarks and always pay them on time.
Think about who you are looking for
Seeking along with their partners or cohabitants is a great way to share the cost of borrowing. But keep in mind that the lender looks at both your and your co-applicant’s credit rating. It is therefore important to only apply for loans with someone who has equal or better credit rating than one. If your co-applicant has a lower dignity, it can follow these tips to raise it.
If you follow this guide you will soon notice that your credit rating is noticeably better.