Tips to improve your credit score

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Fixing a credit score isn’t like fixing a car – no one else can do it for you. But over time, there are things you can do to improve your credit score.

A credit score is basically like a high school grade for adults, but instead of how they scored in math, it’s how they scored on their credit management skills. In this analogy, a credit report is like a report card, going into the finer details of your reliability as a borrower.

Credit scores are extremely important in the world of borrowing, with many lenders basing the assessment of their application on the credit rating of applicants. In particular, top lenders are usually very strict in their credit score eligibility criteria. Thus, they only provide credit products with the best of the best. As such, having a good credit rating is extremely important whether you plan to use credit now or in the future.

If your credit score has taken a hit or you just want to access the best interest rates available, there are ways to improve your credit score. Unfortunately, having a bad credit score isn’t an easy fix, but over time the development of healthy financial habits should be reflected in your credit score.

In this article we will cover:

What is a “good” credit score?

Before we get into what makes a “good” or “bad” credit score, let’s eliminate some background factors.

A credit score is a number between zero and 1,000 to 1,200 (depending on the reporting agency) that is used by lenders to determine your “creditworthiness.” This means that it represents the quality of your credit management products. This could include how you’ve handled credit cards, personal loans, mortgages, car loans, or even utility bills.

In Australia, there are three main credit reporting agencies: Equifax, Experian and Illion. Since these entities are completely separate from each other and use a different methodology to calculate their credit scores, most people have different credit scores with each agency.

What is considered a “good” credit rating varies from agency to agency, but generally a credit rating above 600 is ideal. Let’s take a look at the distribution of credit rating levels, from “bad” to “good,” according to each credit bureau.

Equifax

Experiential

millions

Low

0 to 505

0 to 549

0 to 299

Fair

506 to 665

550 to 624

300 to 499

Good

666 to 755

625 to 699

500 to 699

very well

756 to 840

700 to 799

700 to 799

Excellent

841 to 1,200

800 to 1,000

800 to 1000

What makes a credit score

If you are still wondering how to get a credit score, or if you even have one, there are a few known factors that are supposed to make up a credit score. However, most credit reporting agencies are pretty discreet about how exactly they generate their credit scores.

Credit scores are usually calculated based on the following information:

  • Your payment history

  • The total amount of credit due

  • The length of your credit history

  • The types of credit you hold or have held

  • All new credit

In some cases, you might actually have two credit reports: one using negative credit reports and another using full credit reports (CCRs). This means that you could have two credit scores with one agency.

Negative credit reports, which were the old reporting system used by credit rating agencies, only showed negative credit management behavior of a person. So, if a person missed a repayment, it would have a pretty big impact on their credit rating. But if they were reliable borrowers and generally made their repayments on time, it would not be reported and therefore not show up on their credit report.

To deny this, the CCR scheme was introduced by the Australian government in 2014. It was created with the aim of providing lenders with access to more in-depth and rich data to use when assessing borrowing capacity. of somebody. While only the Big Four have been mandated to implement this new system by July 2018, many lenders now primarily use CCR reporting.

In order for you to view the different information that can appear on a negative credit report versus a full credit report, some common information has been listed below. Keep in mind that information on a negative credit report will also appear on a full credit report, but not the other way around.

Information in a negative credit report

Information in a full credit report

  • Make late refunds

  • Refunds missing entirely

  • Submit multiple applications in a short time

  • Any defaults, court judgments, formal debt agreements, serious credit breaches or bankruptcies

  • Fail to pay a balance transfer on time

Tips to improve your credit score

If you know that some of the negative information mentioned above is on your credit report, there are ways to rebuild your credit score over time. Unfortunately, particularly “bad” credit management errors, such as bankruptcies or serious credit breaches, can show up on your credit report for up to seven years.

Check your credit report

One easy thing you can do to get started is to check your credit report to make sure all of the information is correct and accurate. If there is incorrect information on your credit report, it could influence your credit score. Some things to watch out for might include:

  • Duplicate announcements or incorrect amounts of debt owed

  • Credit that you have not taken out

  • Refunds you made that weren’t recorded

If you find any errors, you can contact the credit reporting agency and they will correct them for free.

Pay existing debts on time

Another thing you might want to consider doing is making sure that you pay off all existing debts on time. This can include credit cards, personal loans, mortgages, or any other form of credit that you are currently using. Your repayment history will be shown on your credit report for up to two years, so it’s important to demonstrate good repayment habits, which can indicate your overall reliability as a borrower.

A common way to avoid missed repayments is to set up a direct debit from your credit provider. This way all you have to do is make sure there is enough money to cover the repayment on the day you choose.

Pay bills on time

While utility and phone bills are not technically a form of credit, overdue or missed bills can actually affect your credit score. In particular, a service provider invoice greater than $ 150 and overdue by more than 60 days may default to your credit report. A default can stay on your credit report for up to five years and is considered a “black mark” on a credit report.

Again, most utility providers allow you to set up direct debits to automatically deduct payments. It is also important to always inform your supplier if you move, so that they do not send invoices to an outdated address. They may be able to email your invoices rather than courier, so you never miss a payment.

Minimize new credit requests

If you’re trying to get a handle on your outstanding debt payments, it may be a good idea not to take on new credit. Plus, all credit applications you submit, whether approved or not, will appear on your credit report. It can affect your credit score.

Submitting multiple applications in a short period of time can signal lenders that you are in financial difficulty and can lower your credit score. So, if you have just submitted a credit application, it may help to try to wait as long as possible before submitting a new credit application.

Lower credit card limits

Your credit card limit is what is shown on your credit report, not how much you spend. This means that if you have a credit card limit of $ 20,000, this is what will show on your record – even if you only spend $ 5,000 of that. So for anyone looking at your credit report, you are using $ 20,000, not the $ 5,000 you actually use. If you can lower your credit card limit, it reduces your active credit amount, which may increase the amount you can borrow. It could also positively affect your credit score.

If you need help, ask for it

If you’re struggling to keep up with your current repayments, it might be worth contacting your credit provider or service provider for help with financial difficulties. Additionally, you might consider speaking with a free financial advisor, who can advise and help you with tasks such as budgeting and negotiating with your creditors.


Image by Dylan Gillis on Unsplash


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