Bad credit is a problem for you. It’s possibly a bigger problem now than before the “credit crunch” when, even in Australia, getting loans was slightly easier. Nowadays after the National Credit Law regulations Australian lenders must make deeper inquiries about your financial situation, requirements and objectives and take reasonable steps to verify this information, as well as deciding whether the credit contract you are asking for is “not unsuitable” for you.
Whilst these changes are just putting into law what many lenders did anyway – to minimise their own risk – it means that if you have a bad credit rating from years back, it can limit your financial choices even more. The best thing you can do is to take the key steps to improve your credit rating as this will mean lenders will offer you lower interest rates on loans (it’s lower risk for them if you demonstrate financial responsibility via a better credit rating.)
Following are ten ways you can improve your credit rating:
Firstly, if you presently have any credit card debts make sure you pay them off as soon as possible. Getting your present accounts in order will demonstrate to the lender that at least you have “turned the corner” and they may be able to write the old credit rating off as a blip in the past – not the case if you have present bad debt on a credit card.
Your credit score will be partly based on the differences between your current balances and the available limits on your accounts, so try to reduce these as much as possible. As a general rule keeping balances under 30% of their available limits is a good idea.
If you are approaching a lender for a loan create a personal budget to work out how much you can afford to pay back on the loan once your credit rating has improved – and gather documentation to prove that, as the creditor will need to see evidence of your claims.
If you have no credit history then take steps to establish one. If you can’t get a personal credit card in Australiathen this can even be done by applying for store cards or gas station cards. What you are trying to demonstrate is that you can borrow responsibly and any way you can achieve that will be beneficial to your future credit rating.
Next, make sure that you always pay your bills promptly. The quickest way to develop a bad credit rating (as well as possible extra charges) is to be late paying your utility, phone or credit card bills consistently. Develop a personal finance budget plan that flags to you when bills need to be paid. Normally they need paying on the same day every month so try to get into the habit of doing this – either by direct debit or through ATMs or banks. Why not use a reminder on your mobile phone to alert you about bill payment every month?
Don’t be scared to request of your credit card company that they report your credit limit to relevant authorities, so that everyone is aware that you are well within your limit and have NOT maxed it out! Credit works both ways and if you have a good rating then don’t be sacred top get it shouted from the rooftops!
Related to this tip is making sure that your past credit history has logged all the loans you successfully paid back. If they have missed a positive repayment then make sure you tell them about it by sending them a letter with statements and get it marked up against your name.
Another way you can improve your credit score is to keep away from any unnecessary credit accounts. If you don’t need it, don’t apply for it in the first place! If you have several accounts with a short credit history attached this can lower your credit score as you will be seen as more of a risk to lenders. However, resist the temptation to cancel any credit accounts you have had running for a while and which you no longer use, as this may also adversely affect your score by reducing your available credit.
You should check your credit score personally so that there are no surprises when you come to apply for a loan and, if you have a bad score, you will know what you need to do before you next apply for a loan. You can check your credit rating in Australia using a site like www.MyCreditFile.com.au where you can request a free credit report that will be sent to you within 10 days. There is also a paid service available.
It is a good idea to have an ongoing system for monitoring your credit score, if you have had a bad credit rating and are taking steps to improve it, so that you know whether the steps you’re taking are working. If not, you will have to change your strategy.
