Every person, business, and even government, any legal entity, in fact, that has borrowed money in the past will have a credit rating.
This credit rating or score speculates as to what the risk might be for future lending to a person or business.
Lenders can look at someone's credit score and determine if they would like to lend money to that person and at what interest rate.
If a person's credit score is too low then getting any type of loan is going to be a challenge and even if that person can get a loan the interest rates are going to be extremely high.
So, improving credit rating is critical if it has taken a dip due to missed payments, late payments, or collections.
The first step to improve credit rating and credit score is to know what your scores are.
By law any person can check their personal credit score with the three main credit bureaus for free once a year.
However most people opt to use a credit monitoring service which shows a person their credit rating all year round and alerts them as to when their credit score may have dropped or improved.
Once you know your credit ratings, you need to go through your credit reports from the three bureaus (Experian, TransUnion, and Equifax) and see if there are any unpaid collections on any of the three reports.
An unpaid collection is the first thing that you need to address on your credit report.
If the debt owed is justified and accurate, you need to pay this debt immediately in order to improve credit rating.
Now sometimes there are inaccurate collections on your credit report, these also need to be removed.
You can do it yourself by writing the three bureaus or you can have a credit service do it for you.
If the bureaus cannot prove the debt is yours, you have won the dispute and it will be removed.
The next step is making sure that you never miss or are late with any of your future payments.
Getting on an automatic bill pay schedule would be a very good idea.
Once you build up a few months of timely payments your credit is going to improve.
Another component to your credit score is how much borrowing power you have versus how much debt you're carrying.
So, for instance let's say you have three credit cards which all allow you to borrow $2000.
If they are all opened and active lines of credit and you don't owe anything on them then you're borrowing power is $6,000 and your debt carried is $0.
You're in excellent shape.
Keeping the debts you carry under 30 to 40 percent of your credit limit a good rule of thumb with revolving credit cards to keep credit rating high.
If you're credit cards are maxed then it's time to start lowering the amount owed, this is a huge part of your credit rating and score.
So paying down those credit cards is the next place to improve your credit, after getting collections paid or waived.
Taking these two main actions are the two best ways to improve credit rating and credit score as quickly as possible.
Remember your credit rating is extremely important to every area of your financial life so get started now.