Five ways to recover from bad credit
A good credit score could land you a better deal on your loan. Despite this, many Aussies have no idea they can access their credit score, or that they could access it for free.
A credit score takes in to consideration information on your credit history, including your repayment history, overdue debts, lenders who have previously been approached for credit, signs that a consumer has been shopping around for products, and any applications for credit including utilities, phone, cash or fast loans.
For those whose credit score comes back bad, they may find it hard to secure credit in the future, even something as simple as signing up for a mobile phone contract. If you score poorly here are five things you should do.
1. Talk to your lender about structuring payments for any overdue debts
It is in a lender's best interests to see you repay a loan rather than default on it, and most lenders are more than happy sit down with their customers to discuss the best way to service your loan. So don't be shy.
Make the time to go in and see your lender about structuring your repayments for overdue debts - it means you'll have a clear plan of attack to repay debts and each payment will go a way towards helping your score increase over time.
2. Keep unused credit accounts open
Even if you've paid off your credit card, you should consider keeping the account open as having an account without negative reports over a long period of time will have a positive effect on your credit rating.
Keep in mind though, if you have another line of credit open at the same time that is not being paid on time, this will have a negative impact on your score.
You should also know, the idea that paying for things on a credit card wherever possible to show lenders that you use the credit amount well is a myth. What affects a credit rating positively is making credit repayments on time.
3. You can change your credit history
Negative information expiring from your credit history, or having information that is incorrect manually removed, can have a positive impact on your credit score.
You can get a full report of your credit history free of charge once a year - and for those in credit score hell, it may be worth an inquiry to see what's on there that's affecting your rating.
4. Set up direct debits
The quickest way to damage your score is to make late payments on your accounts such as mobile, credit card, rent or home loan.
If you haven't already, try setting up direct debits, because you never know when a bill will go missing in the mail or sent to the spam folder.
5. Know your score before applying for more credit
Find out your credit score before applying for more credit. If your score is low, you should take steps to improve your score before applying for credit because each time you apply, it can be recorded on your credit report which can impact your score.
Applying multiple times in succession shows a risky credit proposition.
Ultimately, the most important thing to consider with a credit score is that nothing works in isolation.
There are a whole range of factors that impact a score so it's worth continuing to check what your score is and always staying on top of your finances and repayments.