Credit scores determine the ease with which you can access credit facilities like loans, credit cards, and mortgages.
Having a low credit score can be a challenging experience, especially at times when you need to access said credit but can’t. Loans or credit cards can be lifesavers and can get you out of a tight financial spot. It’s, therefore, crucial to keep your credit scores high to ensure access to these facilities remains open.
A bad credit score, however, is not a life sentence. You can, over time, improve it and rectify any financial damage. You’ll first need to understand your current scores before embarking on your financial repair journey, and remain focused and disciplined during the process.
So, if you need to improve your credit score, we’ve listed seven simple actions you can take that will get you back on track, and quickly.
Pay Your Bills On Time
How you pay your bills is crucial to determining your credit score.
Paying bills on or before their due dates work favourably towards your credit rating. Delayed and erratic debt clearance hurts your scores because this action sends a negative signal to lenders that you’re either unwilling to pay or financially disorganized.
Defaulters with debts of more than AU$150 that are overdue for 60+ days, immediately get on the unfavourable credit radar. Therefore, consistently paying your bills on time is crucial to improving and maintaining credit scores.
Consider automating your utility bill payments by setting up standing orders and direct debits, so that you don’t risk forgetting to pay and subsequently defaulting on them.
Clear Outstanding Debts And Loans
75% of Australian households have existing debts, among the highest in the world, and 29% of homes are over-indebted, according to the 2016 census report.
Outstanding debts and loans automatically contribute to low credit scores, harming your credit report. Credit reports detail the number of credit facilities you have and the time you took to repay them.
It is therefore essential to clear your debts before they’re due, and even more critical to ensure that they do not accumulate. The timely repayments of agreed monthly premiums reflect positively on your score and put you in a better position to access future credit facilities.
Keep Credit Card Balances Low
Do you regularly use credit cards?
Credit cards are an inescapable part of modern life and are not necessarily a bad thing. However, how you use them could impact your credit score.
Maintain low credit card balances, and if possible, pay off any outstanding balances in full monthly. This action will enhance your credit scores, and relay positive spending behaviours to creditors and credit reference bureaus.
Try to spend what you need, when you need it.
Also, opt for credit cards offering low-interest rates. Always keep your balances below 30% of your credit card limit, unless of course, you had to spend on the card in an emergency.
Avoid Carelessly Applying For New Credit Facilities
You may find yourself in dire need of credit when your scores are low or you are unable to clear the current debt. Emergencies and piling debt may push you to the wall, and tempt you to take out new credit to repay old loans.
As soon as you apply, whether you get that loan or not, this attempt will appear on your credit report and have an impact on your scores.
For this reason, if you already have some unpaid and due loans, mortgages, or credit card balances, do not, if you can, apply for new facilities.
Rectify Any Inaccurate Credit Reports With Credit Reference Bureaus
You can access your consumer credit report from the main three credit reference bureaus:
Visit their websites to find out the services they offer, as well as your credit score. Regularly checking your credit score tells you whether your files at the bureau are in order.
Errors on your credit report lower your credit score, making lenders apprehensive about lending to you. Dispute genuine errors and make sure they are expunged from your record. Credit reference bureaus correct any verified mistakes on your file, and although it may cost you, it is well worth doing to improve your rating.
Build an Emergency Fund
Savings don’t just allow you to pay for emergencies or finance something without the need to take up credit, but also guards your credit score should you find it difficult to make payments on outstanding loans.
Savings also show financial institutions that you have back-up funds to fall back on in case the need arises. Defaulting on the credit repayments pulls your credit score, so paying with readily-accessible savings maintains the state of your creditworthiness.
While a good credit score alone doesn’t conclusively determine whether you’ll get your credit application approved, it is still vital.
In some cases, a lender may decide on your credit application by just assessing your credit report and credit score.
Try to keep your scores high and only use credit when you need to. However, if you do have low credit scores, following these simple steps will undoubtedly improve your scores and put you back on the road to financial recovery.