Having a good credit rating and a strong credit history is considered to be an important element of life. A good credit rating and a credit history that paints you as a trustworthy and reliable borrower can help you access credit whenever you need it, whether you are looking to take out a new mobile phone contract or be accepted for a mortgage.
Given the importance of a good credit rating and the flexibility and choices having one can bring to your life, what are the best ways to maintain and increase your credit rating?
What does your credit rating mean for you?
As alluded to above, your credit rating will be checked whenever you want to open a new account or take out a finance product. This includes what are known as “non-finance” products such as mobile phone contracts and utility bill accounts.
Your credit rating not only decides whether you will be accepted or not, but also goes some way to dictating the terms of your credit agreement. For example, let’s look at a scenario if two people were to apply for a personal medical loan from MacCredit:
- Person A has a Equifax credit rating of 1100 and has no previous instances of any missed payments, and their credit file demonstrates prudent use of credit and evidence of them being strong at managing their personal finances.
- Person B has a Equifax credit rating of 650, has two instances of missed payments in the past 12 months, and also has taken out two payday loans during that time while also having a credit card currently at its limit.
Once all circumstances have been considered, it is possible that both person A and B could be accepted for a loan. Yet, due to person A clearly appearing to be a lower credit risk, it is likely that they will be able to:
- Borrow more
- Benefit from a lower interest rate
- Enjoy lower repayments
These benefits mean that, depending on their reason for needing a loan from MacCredit in the first place, they have far more flexibility when deciding how to proceed.
How to Improve Your Credit Rating
There is no one way nor is there a certain formula that will ensure you always maintain a high credit rating or improve a low one. There are, however, a number of factors that are widely known to be considered by credit referencing bureaus. This means that here at MacCredit we are able to provide you with some practical ideas, some of which could become valuable financial habits, to improve your credit rating now, and maintain it into the future.
Here are the ideas and tips you need to know.
Step 1: Access Your Credit Report
Accessing your credit report gives you the opportunity to discover all the information credit bureaus hold on your financial history.
You can access your credit report free if:
- You have had an application for credit refused in the last 90 days
- You are asking to access your report in reference to a credit bureau or creditor correcting inaccurate information previously discovered within your credit report
- You have not accessed your credit report within the past 12 months, excluding under any of the above two circumstances
By checking your credit report first, the knowledge and ideas you will learn about improving your credit rating will quickly become relevant, make more sense, and be more inspiring to put into place.
How to Access Your Credit Report
You can access your credit report via any of Australia’s major credit reporting bureaus using the links below:
Another option is to use Get Credit Score, which uses information from Equifax.
Please note that, although Experian completed an acquisition of Equifax in February 2016, as of April 2016 these reporting agencies continue to hold separate information and data (i.e. depending on the information held by each your credit rating may appear differently).
MacCredit uses Equifax when assessing our customer credit applications.
Learning from Your Credit Report
Once you have chosen a credit bureau and have been able to access your credit report, it is time to begin taking action.
What should you be looking for?
- Look for the records within your credit file that highlight your current financial reality as it stands with active credit accounts, old and closed credit accounts, and your personal status.
- Check that all of the information held here is accurate and up to date.
- Identify the record of how many credit applications you have made, and check this is accurate.
- Identify the records highlighting your personal information, including your address, address history, and employment details and history, and ensure these are correct and up to date.
These are quick checks that will help you identify if your credit score is being held down by incorrect information. Conducting these will help you identify any creditors that have not been updating your credit file as they should have been, as well as if any fraudulent accounts have been opened at an old address, for example, or if anyone has attempted to open accounts using your details.
Raising Queries About Information Held on Your Credit Report
If you identify any of the errors or concerned noted in the paragraph above, you should take action right away.
The first thing you should do is query what you believe to be any incorrect entries with the creditor listed on the report. If you have or have had an account with the creditor in question, you will usually be able to resolve queries at this stage.
If, having spoken to a creditor you haven’t dealt with but appear to have had an account opened or an application for credit made with them, you have identified you might be a victim of identity fraud, you may need to contact your local police department, SCAMwatch, or IDcare to report the fraud and attain a reference number before a creditor will update your credit file.
Creditors know better than anyone the importance of credit files containing correct information, so they will usually be more than sympathetic and willing to work with you to correct any information that is inaccurate or out of date. However, creditors may also be wary of individuals looking to fraudulently remove data from their credit file, for example if they are trying to make genuine debts ‘disappear.’
If, in the unlikely event that creditors are unable or unwilling to be cooperative even if you have provided a crime reporting reference and any additional evidence, you can ask the credit bureau to update the information for you. This can take time as they will often look to verify information with the creditor in question, even if you have been able to provide a detailed outline of the actions you have taken to date.
If you have been a victim of identity fraud, consider taking out ID protection from the credit bureau you used to check your credit file. The credit bureau will then alert you in future any time a credit enquiry is made in your name.
That covers everything you need to know when it comes to checking your credit report is accurate. What are the
additional steps you can now take to ensure you improve or maintain your credit rating?
Step 2: Avoid Repeated Applications for Credit
Having a large number of credit enquiries lodged on your credit report can damage your credit score. Repeated enquiries are perceived as a sign of desperation for credit and an inability to manage finances in the short term, rather than as a genuine need for credit such as to make a high value purchase. As such, repeat enquiries will lower your credit score and see you perceived as a higher credit risk. You can manage this in future by:
- Checking your credit report prior to making any applications for credit, and only applying when you are satisfied that you are likely to be accepted.
- Not making repeat applications for credit after being declined. If you didn’t check your credit report prior to applying, do so now and ensure you always do this prior to applying in future.
Step 3: Don’t Have Access to Credit You Don’t Need
Having credit cards with combined limits of $10,000 feels great when you have that kind of spending power and potential sitting in your pocket. If you never use your credit cards, then you’re not actually demonstrating you’re a reliable borrower and might even be damaging your credit rating. A future application may be declined on the basis that you haven’t demonstrated an ability to manage and repay a credit card balance, or because you already have access to a high value of credit therefore shouldn’t need any more.
You can avoid having credit that you don’t use by:
- Using credit cards with cashback deals, so you can spend a small amount each month, pay the balance off in full, and receive a small sum back as part of the cashback terms.
- Planning to spend part of your monthly household budget on your credit card. For example, if you use your credit card to pay for groceries, you always have this money in your bank account as part of your budget, so always have the money to repay the balance in full each month.
- Closing any credit accounts you don’t use, so they aren’t showing on your credit report as unused credit.
Step 4: Make all Your Repayments on Time
The biggest sign of a reliable borrower is that they have met all their credit and debt obligations by making all their repayments to creditors on time.
What circumstances might see you miss a repayment deadline?
- Cancelling a direct debit then forgetting to make the manual payment
- Not having enough money in your bank account to meet a direct debit instruction
- Knowingly making a payment a few days late if there is no charge for doing so
These are all genuine circumstances and some of them have probably happened to you or someone you know. While creditors can only put a note on your credit file if you are 14 or more days late with a repayment, they still have notes on their own records, which may affect your ability to acquire further credit from them in the future.
If you do make a payment 14 or more days late, despite your account being ‘up to date,’ once it is logged on your credit report your credit rating will be damaged. As you would expect, the higher the number of late payments you have, the bigger the influence on your credit rating.
You should also be aware that different creditors might take a different approach to how they view your late payments when they manually review your credit report. For example, a mortgage lender, or ourselves here at MacCredit if you are looking at borrowing a large sum to pay for medical treatment, may take a stricter view of late payments than a mobile phone or utilities provider would.
Step 5: Pay More Often
Being able to set up a direct debit means you are always able to keep up to date with your repayment obligations. If you pay more often, not only could you be saving money by ensuring you pay less interest, particularly with credit cards, but in the context of your credit rating you are:
- Demonstrating an element of financial planning and control by being able to make additional payments.
- Reducing your outstanding balance, therefore your existing credit commitments, potentially reducing your perceived ‘credit risk’ when creditors check your credit file following future applications.
- Showing that you aren’t reliant on credit for sustaining your lifestyle on a day-to-day basis, but rather use it in emergencies or for making one-off or high value purchases.
- Controlling your credit rating
Although you cannot set the parameters and benchmarks of how a lender will perceive you or decide whether they will accept your credit application, you are able to control everything they see when they access your credit report. Do this by first checking your credit report on a regular basis to ensure accuracy, and then by following the steps above, while being financially prudent and responsible, to ensure that your circumstances are closer to person A than to person B in the example we explored at the start of this article.
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.