Concerned about your credit history? Here are some practical ways to boost your credit score going forward.
Your credit file may be something that stays with you for the rest of your life, but it doesn’t need to be a burden. Ultimately, you have control over it. Even if your credit history isn’t great now, it’s never too late to learn how to improve it. With some time, your credit rating can become stellar and you can look forward to quicker credit card approval or having that big home loan a lower interest rate.
What are the five ways to improve your credit rating?
1. Have an active credit account.
Lenders do not favour borrowers with zero credit history. Having no previous history of credit means they have no assurance that you are a responsible borrower, and this puts you in the high risk category when you apply for a loan. What lenders want to see is a proven track record of responsible borrowing and repayment behaviour.
This means you need to have credit accounts and keep them in good standing. You can start small by opening a mobile phone plan or an internet account in your name. Gas and other utility accounts also factor in, as do store credit cards. Make sure they are all registered to your name and address, and make sure you manage these accounts well.
2. Pay your bills on time.
While this point is obvious, it bears repeating. Paying your bills on time is exactly what lenders want to see on your credit report. An overdue payment above $150 makes an appearance on your credit report after 60 days and stays on it for five years! To avoid this black mark on your credit history, pay attention to those bills and pay them within the 60 day-period.
You can keep track of your bills and set up monthly calendar reminders to help you make punctual payments. Also consider scheduling a regular direct debit or automatic payment to help you stay on top of these things.
3. Avoid negative listings at all costs.
This means you avoid payment defaults like the plague because those things really bring down your credit score and stay on your credit report for five years. Not to mention writs, judgments, bankruptcies, and clearouts which are listed for up to seven years. Even if you’ve been wrongly billed and refuse to pay for something you didn’t use or buy, you can protect your credit report by disputing the amount after first paying off the bill.
Defaults are difficult, if not impossible to erase from your credit file, so nip them in the bud before they are listed. If you really can’t make a repayment, consider appealing to your lender for a hardship extension. You can usually negotiate an alternative and more lenient repayment plan if you explain your situation at an early stage. Running away is not a good option because the problem won’t disappear, and your credit default can become a clear out or “serious credit infringement” which has even worse consequences.
4. Avoid too many hard credit enquiries.
Each time you apply for any form of credit, your prospective credit provider is likely to make an enquiry on your credit report. This is called a “hard” enquiry, as opposed to a “soft” enquiry where you request your own credit report. Hard enquiries take a few points off your credit rating, and lenders tend to view them negatively because having too many hard enquiries on your report suggests you’re desperate for credit and not managing your resources well.
That’s why you should only apply for credit when you’re confident of being approved. It’s also wise to be conservative with credit, because there’s no sense wrecking your credit history trying to acquire a stack of credit cards. If you’ve been turned down for an application, wait a while before trying again. Time is an important factor in credit reporting, because lenders are more inclined to disregard events in the distant past. This means that even though enquiries stay on your report for five years, listings from more than two years ago are considered much less relevant than more recent ones.
5. Keep your credit report in order.
Have you ever requested a free copy of your credit history from the Credit Reporting Bodies (CRBs) in Australia? The Office of the Australian Information Commissioner reported in 2013 that 30% of Australians have errors on their credit file. It would be prudent to check your own credit report regularly to ensure that there are no errors on it, and you should make use of your free yearly copy to do just that.
You should request a report from all three CRBs because their files all rely on voluntary reporting and may look different. It’s entirely possible for one CRB to have a mistake on their file when the other two don’t. In the event you discover a mistake on your report, you should bring it to the CRB’s attention so it can conduct a free investigation for you and resolve the issue accordingly. If the error is more complicated than a simple case of mistaken or stolen identity, you may wish to consult a credit repair company.
While there are certainly other things you can do to improve your credit rating, such as having a variety of credit options or keeping accounts open even when you’re not using them to improve your credit utilisation ratio, the five tips here are the primary principles for crafting a good credit reputation. After all, since you can’t run away from this credit rating business, you might as well do everything you can to face it with a big smile.Back to top