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Real Money Advice for Kids

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How to build a AAA Credit Rating

Wilson Luna

Your credit rating matters. It matters because a lender – be it a bank or finance company will look at your credit history and give you a credit rating. A low credit rating can prevent you from getting a home loan or even a credit card.

Easy credit which fuelled prosperity has been dramatically replaced by a very imperfect and troubled credit market. As one highly successful business leader said 'Borrow money when you can, not when you need it. And remember the three C’s'.

He was referring to the traditional banker’s criteria of character, capacity and collateral. Any bank or financier will naturally want to see exactly how you intend to repay the loan, whether this is via a series of repayments over a fixed term or as a total loan return after a defined and agreed period.

Collateral is any additional form of security a borrower would provide the lender. Classically it’s bricks-and-mortar. Character is a much-bandied-about term. In credit terms, it’s reflected in a credit report. It’s expressed as a score by which a lender can reliably assess the credit worthiness of a borrower by their track record or credit history.

The rules of the game have changed but so too has mindset. If you have a regular income and have equity in your home then lenders should trip over themselves to lend you money. If you have no home equity and irregular or un-documented income then I would recommend going back to the three C’s.

If you liked this article you might also be interested in taking a look at these articles about protecting your credit:

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Author's Biography

Wilson Luna is an author, wealth adviser and founder of Your Family Your Money. Your Family Your Money’s goal is to simplify traditionally complex financial strategies, demystify financial jargon and debunk common financial myths, becoming every family’s first stop for financial advice, information and inspiration.