Dealing with your credit score can be intimidating. Your credit score has a huge influence over your life, as lenders will use it to determine how trustworthy you are as a borrower. Having a good credit score can help you get a home loan approval, as well as access to better offers in general. With such high stakes attached to it, it’s no wonder people struggle to address their credit score head-on. Fortunately, improving your credit score and keeping it within a healthy bracket is very achievable once you have the right information.
1. When You Pay Your Bills
The timeliness with which you pay your bills has a significant influence on your credit score. If you’re late paying a bill, this detail will show up on your credit rating, even if you paid it before it became a default payment. On the other hand, paying your bills on time each month can boost your credit score, as this behaviour indicates how you’ll act in the future. For this reason, we recommend setting up direct debits and creating a realistic budget for yourself. You can also let your creditors know ahead of time if you think you’ll be unable to pay a bill, and they can help you sort the issue.
2. Credit History
Your credit history involves several factors, each of which can have an impact on your credit score. For example, the type of credit providers you’ve had says a lot about your financial habits. If you’ve applied for a home loan from a reputable lender, this fact will increase your credit score, while applying for a credit card from a retail store will decrease it. The length of your credit history also plays a big part in determining your credit score. An older credit report is more favourable to lenders, as a longer record of information makes it easier for them to access your credit score. A short credit history isn’t as reliable an indicator of future actions and behaviours.
Existing debt is not necessarily going to impact your credit score, but there are particular types of debt that lenders will see as a red flag. If you have multiple credit cards or payday loans, for example, you might damage your credit score. Having debts with specialty finance (debt collectors) can negatively impact your score, and stay on your credit file for 5–7 years. Not all hope is lost, however—getting on top of your debts can go a long way in repairing this damage.
4. Negative Credit Actions
Negative credit actions can be very damaging to your credit score. These include things like defaults, bankruptcy and frequent credit enquiries. A history of payment defaults indicates that you might not be a reliable borrower, and bankruptcy has similar associations. Any court judgements made against you relating to unpaid bills will also go on your credit report. You should also remember that every credit enquiry you make will be added to your credit report, including buy now, pay later transactions. If you have a lot of credit enquiries spanning a short period of time, lenders might view you as a high-risk borrower who is desperate for cash.
5. The Accuracy of Your Credit Report
If your credit report is inaccurate, this could have a huge impact on your credit rating. This is why you need to take the time to check your credit report for inaccuracies. If you find anything that doesn’t seem quite right, bring it up with your creditors and clarify the situation.
How Is Credit Score Calculated?
In Australia, credit scores are calculated by one of three major credit bureaus, each of which has developed their own algorithms for determining credit scores. These bureaus include Experian, Equifax Australia, and Illion. To calculate your credit score, bureaus weigh up the positive and negative actions recorded in your credit report and come up with a number that best reflects that reality. Each of these separate algorithms places importance on certain behaviours over others, so results will vary slightly between different bureaus. Overall, however, certain actions are always considered negative, while others are always positive.
How to Improve Your Credit Score
If your credit score is low, you might be feeling a bit discouraged, but it’s important to remember that your credit score can always be improved. Building your credit score takes time and discipline, but it’ll be well worth it in the long run. By tackling the task one step at a time, you may even find that it’s much more achievable than you think.
Tackle Bills and Debt
This tip is fairly simple, but it’s one of the most effective ways to fix a bad credit score. Rebudget in a way that prioritises your debts and upcoming bills. Do what you need to do to make this process easier on yourself; for example, setting up direct debits. When it feels difficult, remember that working on your financial health will also have positive ramifications in other areas of your life.
Make Minimal Credit Enquiries
As we’ve established, making a large amount of credit enquiries over a short period of time can look bad to potential lenders. If you have a history of doing this in the past, try to break out of this habit. If you are going forward with an application, make sure you’re ready to do so, and do your research first.
Check Credit Report for Inaccuracies
It’s a good idea to take a thorough look at your credit report and flag anything that seems wrong or off. To be safe, take a look at reports from all three bureaus, and if you find anything that doesn’t look right, clarify the details with your creditors. You can also request more information from your bureau to figure things out. This step is very important as inaccuracies in your credit report can be a substantial negative influence on your credit score.
Seek Help and Stay Positive
Repairing your credit score is doable. If you need help getting started, don’t hesitate to reach out to Credit Repair Solicitors. We can help you with checking your credit report, repairing your score, contacting your creditors and everything in between. We take the stress out of improving your credit score. For efficient and effective assistance, contact Credit Repair Solicitors today!