How to boost your credit score: 4 easy tips
If a bank won't grant you a loan, it's usually because of your credit score. We show you valuable investor tips on how to improve your own credit score in the long term.
Your credit score plays an important role in many contractual negotiations involving credit risk. Whether you want to sign an electricity, rental or internet contract, your counterpart will check your creditworthiness before signing.
If the check is negative, you will have to accept poorer conditions or you may even be rejected for a contract. To avoid getting into such a situation, you can improve your credit score with the following tips.
What is credit score anyway?
Before banks grant a loan, the creditworthiness of the borrower is carefully checked, among other things. The creditworthiness or credit score of a person tells with what probability a loan will be repaid to the lending bank.
To "calculate" this assessment, a variety of factors are taken into account, such as your personal income or your previous dealings with credit.
In another guide, you will learn more background on the assessment criteria of creditworthiness and specific tips for real estate financing through a bank and how to boost credit score.
Tip 1: You can delete old or error-free entries
The SCHUFA is a credit agency that stores data on contracts and financing, among other things. This results in the SCHUFA score, which you can view in your personal information.
You can request this information once a year free of charge to get an insight into your positive and negative entries.
It is important to note that credit agencies do not always work without errors. It may well be that your credit report contains outdated or inaccurate data.
The first tip to improve your credit rating is therefore to check your credit report for incorrect data. If this is the case, you can ask the credit bureaus to delete the relevant data about you.
Tip 2: Make credit inquiries properly
If you are interested in a loan, you should formulate your request correctly. The background: If you apply to a bank for a loan, the bank will contact a credit agency to check your creditworthiness. This query can be formulated with a crucial difference.
Namely, banks can make a "credit inquiry" (KK) on the one hand or a "condition inquiry" (KA) on the other. The difference: A credit inquiry is noted in your credit report for 12 months. Several such inquiries then quickly give the impression that you wanted several loans, but were rejected by all banks.
The condition inquiry, on the other hand, is neutral for your creditworthiness, it is not noted with any entry. So when talking to your bank, you should always ask for a condition inquiry to improve your credit rating.
Tip 3: Clean up your accounts, keep an eye on your finances
When assessing your creditworthiness, banks do not rely solely on credit reports. Your current financial situation also plays an important role. For example, you should have a monthly budget surplus, have built up income and savings, or have a long-term employment relationship.
To keep better track of their own finances, many savers like to have several accounts and credit cards. However, this is often viewed negatively by credit agencies. For this reason, you should get rid of unnecessary accounts, whereby call money or fixed-term deposit accounts are irrelevant in this regard.
Tip 4: Pay off debts quickly and avoid payment arrears
If you have been in arrears frequently, this will of course have a negative impact on your credit rating. If you want to improve your credit rating, you need to increase your creditworthiness through reliable and punctual payment behavior.
This point also includes your past debts. If you still have outstanding consumer loans, it is advisable to pay them off quickly. Once you have paid off a loan in full, the corresponding entry is deleted from your credit report after a period of three years.