How to improve credit rating to improve bad credit score?

Maria James

credit score

An account in the plus and no credit running – most consumers think that their creditworthiness and creditworthiness are secured.

But there are other factors to maintain or even improve creditworthiness. Read this guide to find out what factors these are and how you can influence them to improve the bad score.

Definition of creditworthiness – what is that?

The Duden defines creditworthiness as “an impeccable reputation of a person or company with regard to their solvency or creditworthiness”. It is therefore always important if you want to take out a loan, rent an apartment or sign a smartphone contract, for example.

There will be few business partners who enter into a contract with someone who is obviously unable or willing to pay. In addition, the corresponding credit rating can mean better conditions, i.e. cheaper lending rates.

So before you take out or request a loan, you should check your creditworthiness. Because even if you have shown impeccable payment behavior so far and are debt-free, you may still be able to get something out of it and further improve your creditworthiness.

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A loan can make many things possible: the dream car, the honeymoon on a desert island or simply rescheduling an existing, more expensive loan. But be careful: If your wishes are getting tight financially, then you should not rush to the first available offer from your house bank. You can apply for the Santander BestCredit quickly and conveniently online – including fixed interest rates, variable terms and low monthly rates. 

What does a credit report say?

A credit check should provide information about whether you are a reliable payment partner. As a rule, credit bureaus give the value as a numerical score (for example, the Schufa score is is between zero and one hundred). This value describes the creditworthiness. Consumers or potential business partners and lenders can use it to get an idea of ​​their financial obligations and payment practices.

Credit report versus self-report

While the credit check serves as proof for your business partners, the self-assessment is intended for you to check your stored data. According to Article 15 of the General Data Protection Regulation (GDPR), the credit bureaus must disclose to the consumer, free of charge, what data is stored about him. 

What credit agencies are there?

Credit bureaus collect business-relevant data and creditworthiness information about private individuals and companies and pass them on to clients. The best-known credit agency is Schufa . 

Creditworthiness: What does creditworthiness mean for loans?

If you want to take out a  loan  , the credit rating often plays a twofold role. First of all, the bank decides based on your creditworthiness whether you will get a loan at all. In addition, the interest rate for many lenders depends on your creditworthiness: the better your creditworthiness, the better conditions you get. A look at the Biallo installment loan comparison shows that with creditworthiness-dependent interest rates, interest rate differences of five percentage points and more are possible – with one and the same provider. But there are also loans with a uniform interest rate that all customers receive equally. Here the creditworthiness only decides whether you get the loan or not.

Tips: How to improve your credit rating

Creditworthiness is not set in stone. It changes depending on the financial situation and payment behavior. There are definitely levers you can use to improve your creditworthiness.

have the self-assessment corrected

If your self- assessment contains incorrect or no longer up-to-date data, you can and should have this corrected promptly. Incorrect records could be receivables paid or loans repaid that have not been deleted. Such data worsen the so-called score value and thus the creditworthiness. Incorrect data and the request for correction should best be sent to the credit agency in writing. If there are discrepancies or if the credit agency refuses to delete a data record, the consumer has the option of contacting the ombudsman .

make payments on time

At the top of the list of “How to improve my credit rating” is your own payment behavior. Reminders, debt collection and affidavits extremely deteriorate the creditworthiness and damage the reputation. In order not to get into calamities in the first place, everyone should get used to paying bills immediately or at least within the specified payment period. By the way: If a customer pays on time, he can often reduce the invoice amount with a so-called cash discount. A reminder fee, on the other hand, only makes the final amount even more expensive. But if you accidentally pay a bill a few days late, you don’t have to worry about a negative Schufa entry. 

Reliably pay off debt

If you have debts, you should pay them off reliably. If you are debt-free or have only small credit obligations, it is easier to get a loan and good conditions. Besides, it’s not a good idea for consumers to accumulate too much debt anyway. There is a great danger of losing the overview. And at some point the debt trap snaps shut .

But: A properly serviced loan improves the credit rating. Because it shows that you pay reliably. Your creditworthiness can even be better than if you had not taken out a loan.

Avoid many small loans

Zero percent financing at an electronics store or a small loan at a furniture store: it ‘s easy to take out a small consumer loan and pay it off. But: Taking out many small installment loans has a negative effect on the credit score. It is better to take out a larger loan that can be used to finance several purchases. And of course the financing amount should match the income so that the debt can be repaid without any problems.

Important: If you want to take out a loan, it is worth comparing the conditions of different providers. But be careful: Make sure that you do not make numerous specific loan inquiries. This has a negative impact. Pure condition inquiries do not affect the scoring. With the Biallo installment loan comparison , you can easily compare conditions.

Choose accounts and cards wisely

A wallet full of credit cards is the epitome of wealth for many. The credit bureaus see it differently. They view having many accounts and credit cards as negative. Business partners may ask themselves the question: “Does he want to cover all of them? Can he afford it in the long run? Does he keep track of things?” It’s better to cancel little-used credit cards and keep accounts to a minimum.

Note:  This is about payment accounts that can sometimes be in the red. Deposits , time deposits and money market accounts have no negative impact.

  • Biallo tip:  Our current account comparison will help you to find the best account.

If you have a bank that you are dissatisfied with, change banks. But choose wisely. Frequent bank changes can have a rather negative effect on your creditworthiness. If, on the other hand, you prove to be a reliable payment partner over a longer period of time, this has a positive effect on your creditworthiness.

High overdraft is good – overdraft is bad

The higher an overdraft facility , the better the bank and credit agency assess the creditworthiness of the customer. However, the bank customer should not overdraw the overdraft facility. Because some banks deposit overdrafts with the Schufa. It is very bad for the creditworthiness if the bank terminates the overdraft facility.

Match expenses to income

In the case of a loan request, the bank compares the regular cash receipts with the regular obligations. If you always have more expenses than income, you definitely cannot tolerate additional installments. If, on the other hand, there is enough financial leeway after deducting expenses, it is likely that the applicant will repay the loan on time.

How does a loan affect my credit rating?

If you take out a loan, it doesn’t necessarily have a bad effect on your credit rating. The opposite can even be the case. Of course, the loan amount must match your financial resources. And you must repay the loan properly. Then it can even have a positive effect on your creditworthiness, because you prove that you are a reliable payment partner. 

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