Having a bad credit score can really limit your financial options. But can you do anything to fix your score? And how?

Read on and create an action plan to fix your bad credit.

What is bad credit?

A bad credit score can be the result of a number of factors, including having large amounts of debt, a lot of credit available and overdue payments of loans, credit card repayments, and even utility bills and other lines of credit such as store cards.

If you’re regularly missing repayments, or have defaulted on your mortgage, you may find that your credit score is low (bad).

The first step to knowing the status of your credit health is to request information from the credit reporting bureaus.

There are three major bureaus operating in Australia, and they may each have slightly different information on your credit file. It is free to request information on your credit score and report once per year.

You can request your credit rating from the agencies via phone or online:

• Equifax Australia (formerly Veda), 1300 762 207
• Check Your Credit, 1300 734 806
• Experian, 1300 783 684

Ensure your credit report is accurate

So, you’ve discovered that your credit score is less than ideal. What can you do to fix it?

Since your score is a reflection of your credit report, you want to make sure that all of the information on your report is accurate.

Perhaps surprisingly, it’s not uncommon for there to be mistakes on credit reports and these errors can hinder your ability to apply for credit.

Things to check thoroughly include personal information, defaults and judgements, old default and judgements (there is a specific timeframe that old defaults should only appear on your credit report for), and incorrect details of credit history.

If you do find any errors, you should contact the credit bureau to have it corrected. You can also seek free financial advice from a financial consultant to help you with this.

Consolidate your debt

Once your credit report accurately represents your credit history, you may still find yourself with a bad credit score. The good news is that there are still things you can do to fix this bad credit.

Consolidating your debt into one loan with a good comparative interest rate can help you manage your outstanding debt more easily and begin to improve your credit score with only one affordable periodic repayment.

Credit cards are notorious for perpetuating the debt cycle. Once you’ve consolidated any outstanding balances into a consolidation loan, you need to decide whether to keep or close your credit card accounts.

If you’re a disciplined spender, keeping your credit card accounts open is beneficial as it lowers your credit utilisation ratio, showing that while you have credit available to you, you are a responsible borrower that is managing their credit well.

If, on the other hand, you aren’t so disciplined and having clear credit cards is too tempting, close those accounts so that you can’t rack up more debt and find yourself worse off financially.

Timely repayments are paramount

The most important thing you can do to improve your credit score is to make your repayments on time, every time. It’s not an overnight fix, but your credit will steadily improve as you show that you are able to repay your debts reliably.

That may be easy to say in theory, but what are some tips to help you achieve this goal in practise?

Writing up an accurate budget, spending less than you earn, don’t take on unnecessary new debt, and watch your money carefully.

You could keep a spending diary, go through your credit statements as they come in each month, and track your utility usage to lower costs wherever you can.

These good habits will create a healthy financial environment which will help you see your credit score improve over time.