Having a bad credit score can impact your financial situation in a number of different ways.
So what can you do about it?
Read on to find out how to fix bad credit.
Having bad credit means that there are negative listings in your credit report, which is held by one or more of the credit reporting bureaus.
Each of these listings, along with positive listings (such as repayments made on time) contribute to your credit score.
When it comes to credit scores, the higher the better, so if your credit score is low, you have what is considered “bad credit”.
A bad credit rating hinders your ability to access future credit. This includes home loans, personal loans, credit and store cards or any other form of credit.
It can also have an impact on potential future jobs or starting a business.
For these reasons, it’s a good idea to work towards a good credit score. Read on for our step-by-step guide to fixing your bad credit.
1. Get your credit report: To know what you’re working with, you need a copy of your credit report.
There are three credit reporting bureaus in Australia, and your credit report with each may be slightly different.
You can request a copy of your report for free once per year.
2. Fix any errors on your credit history: As mentioned above, each listing on your credit report impacts your credit score.
Now’s the time to go through each listing in your history and look for anything that may be incorrect.
Contact the credit reporting bureau to correct any mistakes and prepare your documentation to prove your claim (copies of bank statements, for example).
3. Get your debt under control: If you still have outstanding debt, it’s essential to make a plan to repay your debts.
Write a list of each out your credit lines and create a realistic budget to ensure you meet your financial responsibilities.
If you find that you can’t afford to repay your debts on time, you should seek free financial advice as a debt solution such as a consolidation loan may help you.
4. Make all your repayments on time: Each time you make a repayment on time, your credit report gets a positive listing, which over time will improve your credit score.
If you need to, set reminders for yourself to transfer payments when required.
5. Repay your debt: It’s not a quick fix, but paying off your debts will really improve your credit rating.
You may choose to work on repaying one debt at a time (while meeting minimum payment requirements for your other debts) or dividing up any available funds to repay each debt equally.
Either way, once you see the figures go down, you’ll also feel the weight lift from your shoulders, and that credit score go up!
6. Minimise credit applications: Perhaps surprisingly, whenever you apply for credit, your credit score takes a small knock?
So, it’s best to keep new credit applications to a minimum and do your research beforehand so that you can be fairly certain your application will be approved.
And remember, once you’ve paid off your debts, you’ll have a greater available income to save for the things you want to purchase, so perhaps you won’t need to apply for credit after all.
7. Get advice: Seeking financial advice is always a good idea.
As each individual’s financial situation is unique, getting financial advice on the options that may work for you may help you improve your credit score faster.