If you’ve ever had a mobile phone, a credit card or any kind of finance – including a gas or electricity account – you’ll have a credit score.
Lenders check your credit score when assessing loan applications – the better your score, the more likely they are to lend to you.
Your score is based on factors such as:
- money borrowed,
- accounts like phone, utilities, etc.,
- on time/overdue payments,
- past credit applications.
The higher your score the better; you’re more likely to have loan applications approved and may be able to bargain a better deal.
Conversely, a low score can influence a lender against you, making it difficult to secure a loan or credit.
Finding out your credit score is easy and free. The government’s MoneySmart website provides details for reputable companies that can supply you with a copy of your credit report.
What if you find out your credit score is not looking too good?
Here are five things you can do to improve it.
- Firstly, what’s the story? Get a copy of your credit report. It shows things like:
- credit products and providers,
- credit limits,
- repayment history,
- bankruptcy and debt arrangements.
Ensure your details are accurate and up-to-date and contact the reporting agency to have errors rectified.
Now, review the information. Are there trends? Perhaps you’re paying bills according to your wage cycle even if that means being a few days late?
- Consolidate multiple cards and/or loans into one and cancel cards where possible. Fewer loan facilities are more manageable, it also looks better on your report.
Avoid applying for credit increases as any increase will add to your total credit debt. Additionally, applications for credit, and credit increases, are included in credit score calculations.
- Consider a nil-interest balance transfer. This is where you transfer your outstanding credit card balance to a new card offering zero interest for a limited time. Schemes like these enable you to quickly pay down debt during the interest-free period, but make sure you’re clear about the terms and conditions as penalties can apply.
- Where possible, reduce your credit card limits. Pay the full balance each month, or pay more than the monthly minimum when you can. Even the smallest amount can make a difference.
With personal loans, mortgages and council rates, pay on time – every time – and make additional payments whenever possible. Always pay rent and mobile phone accounts on time – it’s a recurring theme, isn’t it!
If you struggle to pay utilities by the due date, contact your provider. Many offer plans called bill-smoothing, where you pay a set amount each month. Goodbye bill-shock!
- Create a realistic budget based on your income and expenses, and include the due dates of your debts. This will help you synch your pay cycle with financial obligations. It will also identify any savings that you can use to pay extra on loans and cards.
A poor credit rating is not the end of the world, but repairing it can take time and discipline. If you’re not sure where to start, seek professional advice. It’s all about managing debt, prioritising and making your credit score work for you.