REVAMP YOUR CREDIT SCORE
One of the most positive changes any of us can make at a given time is to take stock of, and act to improve, our personal financial situation. Your credit score is one of the most important cornerstones of your financial circumstances. Let’s take a look at how you can start to revamp your credit score today and prepare for a fantastic year ahead.
You Need to Understand Your Current Reality
Do you know what your credit score is, and what your credit file looks like? The first step to making an improvement is to understand your current reality.
Whether your credit score and history is quite poor, or you are looking to make your score even better so you can access the best personal loan interest rates, there will always be things you can do to improve.
Checking and Updating Your Credit File
Australia has three credit bureaus. These are listed below.
Each credit bureau is required to provide you with access to your credit report at no charge once a year. You are also entitled to request a copy if you have been refused credit in the last 90 days, or if credit-related information on your credit report has been corrected.
If you request access to your credit report outside of these circumstances, a credit bureau can charge a small fee.
Different credit bureaus may hold different information about you, and different lenders will view your credit file with different credit bureaus when you apply for a credit product. As such, it is recommended that you check your credit file with each credit bureau annually. This will enable you to ensure that as much of the information held against your name is correct, which may help to improve your chances of being accepted the next time you apply for credit.
What Should You Look for When Checking Your Credit File?
When you check your credit file, you’re simply looking to ensure that the information held about you is correct.
The key things you should check are:
- Your address and personal information are current.
- Financial accounts information, specifically that you don’t have any late payments listed that aren’t yours.
- Account closing information. As well as being a great means of discovering which lenders have not reported your accounts closing, this can also be useful for discovering if you have old store cards or other accounts with a zero balance that you’d forgotten about.
If you wish to dispute or need to correct any of the information held against your name, you can usually do this via the online platform where you accessed your credit report. It is recommended you contact lenders directly and look to address any issues this way before raising disputes, as the credit bureau will only have to contact the lender themselves anyway. Dealing with it yourself will save time, bringing your credit file into good order and up to date quicker.
Remember that when your information is updated, you’re entitled to access your report at no cost again, so you can check that your credit file is correct.
Why Comprehensive Credit Reporting (CCR) Might Work to Your Benefit
Now that CCR is mandatory for the big four banks, with many smaller banks, non-bank lenders, and other financial services providers also providing information to credit bureaus, you could stand a better chance of being accepted for credit and have a greater opportunity to improve your credit score.
Previously, your credit score would reduce if you showed signs of negative behaviour, with no acknowledgement of good behaviour. CCR allows lenders to gain further insight into your financial management skillset, reporting the good and the bad, for a “comprehensive” overview. Consistently good behaviour will provide evidence to lenders that you may be a lower-risk customer, and likely increase your credit score.
It Pays to Pay Your Bills on Time!
This means that instead of one or two late payments potentially being interpreted as being an unreliable borrower, lenders will see this against the backdrop of many years of on-time payments and control of your use of credit.
This instantly changes the picture lenders are seeing and could make a difference to your credit application.
What else can you do to help yourself revamp your credit score as you head into 2020?
Don’t Apply for More Credit
Applying for credit on a number of occasions in a short space of time can interpreted by lenders as a sign of financial distress, which may put them off wanting to lend to you.
It will also have a negative impact on your credit score.
Don’t apply for more credit before you have worked on your credit file and dealt with some of the other factors we’ve discussed. You should only look to apply for credit once you’re happy that your credit file is correct and you’re confident you would be approved.
Use the End of the Year to Prioritise Paying Outstanding Debts
The end of the year and the festive season is a time for giving.
The best gift you can give to yourself is to prioritise paying outstanding debts.
You don’t need to eliminate these entirely, but if you’re able to make additional repayments on a personal loan or pay more than the minimum payment on your credit card, this will make a difference.
Reducing your outstanding debts on your credit report can highlight that your financial situation is improving and may make it more likely that you will be accepted for additional credit.
Manage Your Credit Card Usage
Keeping your credit card balance low is much better for your credit score than it being high. It’s even better if you can use your credit card little and often but repay the outstanding balance in full each month.
In terms of your credit cards, you are best off thinking in terms of your debt to credit ratio.
For example, if you have a credit card with a limit of $1,000 and a balance of $300, your debt to credit ratio is 30%.
A good benchmark for this ratio is 50%, which means that you should try to ensure your balance is never any more than 50% of your credit limit. Continuing with the example above, this would mean a balance of no more than $500.
If you have high credit card balances, make these the outstanding debts you choose to prioritise paying at the end of the year.
As We Move into 2020, Diversify Your Credit if You Can
While in the short term we recommend you do not apply for credit until you’re happy with the accuracy of your credit file, one of your goals in the medium term should be to look at diversifying the types of credit you use and manage.
If you’re able to manage and maintain different of types of credit without missing repayments, this can be beneficial to your credit score. Not only will you be seen as a responsible and reliable borrower, you will also be demonstrating your ability to maintain different credit types.
Revamp Your Credit Score for Your Own Financial Freedom
Taking the time to look at your credit history and any actions you need to revamp your credit score could see you gain a lot of financial freedom. Not only will you be able to apply for credit in confidence, you will also be able to access better interest rates and credit deals, particularly from lenders that are committed to offering personalised rates.
If you are seeking a personal loan, then MacCredit may be able to help. We offer a variety of personal loans from our panel of lenders, allowing us to match you to the best personal loan provider based on your circumstances.
Disclaimer: This article contains general comments and recommendations only. This article has been prepared without taking account of your objectives, financial situation or needs. Before taking any action you should consider the appropriateness of the comments made in the article, having regard to your objectives, financial situation and needs. If this article relates to the acquisition, or possible acquisition, of a particular credit product you should obtain and consider the relevant disclosure documents before applying for the product.
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