Your credit rating is the single most powerful financial feature at your disposal. It affects your ability to access money or financial instruments, such as credit cards and mortgage loans. For obvious reasons, you should try to improve as much as you can.
There are several tried and tested tricks you can use to improve your credit rating. However, nothing will be more effective than paying your bills on time and being judicious with your use of money.
Follow these strategies for improving your credit rating right now.
Check Your Credit Score
The first step to fixing your credit score is to know where you stand. Many people think they have ‘bad credit’, but they don’t know exactly the problem with their credit report. You should be able to get a copy of your credit report from all the major credit bureaus in Australia.
Once you have your credit report, you should look out for anything that may negatively impact your score. These could be things such as defaulting on a loan or late payments. Most of these may be legitimate – and you can always deal with them – but we are looking for anything that may be a mistake.
If you find an error, you will have to send a letter to the creditor notifying them of the mistake. You will have to provide supporting evidence to prove your point.
Pay those Bills on Time
All your strategies for improving the credit rating will fall apart if you fail to pay on time. This is because payment history plays a significant role in credit scores, and a single late payment can stay on your credit report for a long time. If you miss your payment, call your creditor right away. Arrange to make the payment right away and ask them if they will no longer report the missed payment to the credit bureaus.
Even if your lender refuses to do this, it’s important to get the current payment on the account right away. They mark your account delinquent each month, which will hurt your credit score. The good news is that the negative influence of a missed payment will fade over time. Moreover, being responsible with your finances will offset the damage and improve your credit.
Make Multiple Payments Throughout the Month
If you can make smaller payments – often known as micropayments – throughout the month, they can keep your credit card debt lower and improve your credit rating. Set up payment reminders for your bills to help you pay them consistently. Being consistent will raise your score within a few months.
More importantly, paying more than once in a billing cycle reduces your credit utilisation, which is an important factor that influences your credit score.
Automate Bill Payment
Since the best thing you can do is to pay your bills on time and in full, you should enroll for automatic payments. To err is human and we often forget. This is why automatic payment is so valuable and many lenders provide a discount just for enrolling. Make sure to check in with your financial institution to see what discounts may be available for opting in.
Keep Older Accounts Open
The length of your credit account can play an important role in your credit score. Some people advise cancelling your credit card when it gets paid to remove the temptation. If you feel that this is important for you, then certainly go through with it. But keep in mind that you will be removing an old credit account. Consider cutting the card but keeping it open because it is an important component of your credit rating.
Don’t Open New Accounts
When opening accounts, your lender will check your credit. There are two types of credit checks: hard and soft. While soft pulls do not impact your credit score, hard pulls can lower your credit score by about 20 points.
It’s a bad idea to open one or two accounts. But if you open up several new accounts, lenders may interpret that as having financial difficulties – and that could hurt your credit rating.
Credit inquiries and the length of time your accounts have been open may seem minor, but you should try to minimise the number of accounts you open.
Use Credit Monitoring Services to Track Your Progress
A credit monitoring tool lets you see how your credit score is changing over time. These services provide access to your credit scores from the major credit bureaus and are updated monthly. Most credit monitoring services also prevent identity theft and fraud.
For example, if you get an alert that a new credit card account has been opened in your name that you don’t remember opening, you can contact the credit card company to report the fraud.
Consider Consolidation Your Debt
If you have a lot of outstanding debt, you should take out a debt consolidation loan and pay them all off. Then, you’ll just have one payment to deal with, and if you can lower the interest rate on the new loan, you’ll be able to pay down your debt faster. This will improve your credit score in the long run.
Similarly, you can consolidate several credit card balances by paying them with a balance transfer credit card. These cards have a promotional period during which they charge 0% interest on your balance. Beware of the high transfer fees, though.
Consider Jacaranda Finance to pay off existing debt.
How Long Does it Take to Improve Credit Rating
In general, it takes about 3 to 6 months to improve your credit rating if you’ve been managing your finances responsibly. It may not be possible to change the credit score any faster unless the negative information on your credit report was a minor issue, such as being late with the bill payment one month.
However, if you fail to pay your bills on several accounts and fall three months behind on your payments, it may take longer to improve your credit rating. The effect is more severe if the late payments result in foreclosure or repossession.
In all cases, the impact of negative marks on your credit score will fade with time and your habits with finances. Most negative marks will fall off your credit report and stop hurting your credit score eventually.