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A bad credit rating can be a barrier to accessing numerous financial products and services, from a small purchase or contract such as a mobile telephone contract right up to buying a car or a home.

While a less than perfect credit history and rating may not prevent everyone from accessing credit. It is worth being aware of what your credit rating is and how you can influence it. By doing this, you can put yourself in the best possible position to have your credit application.

What is Your Credit Report?

Your credit report is effectively an overview of your financial history in respect of your access to and use of credit.

You are legally entitled to access your credit report free once a year as well as under the following circumstances:

  • If you have been rejected for credit in the last 90 days.
  • If you wish to make a check in respect of any corrections made by a credit provider or credit bureau.

You can also take out subscription services offered by VEDA and other credit bureaus to ensure you manage your credit report as well as possible.

Your credit report is significant, because it contains details of your previous financial behaviour. Your credit report and credit score will be used by lenders to make a decision on whether to lend to you, and can influence the interest rate you may be offered for a loan or another credit service.

Although bad credit signals, such as defaults, will remain on your credit report and influence your credit score for five to seven years, it is possible to gradually fix and repair a bad credit rating and to improve it over time in order to present yourself as a low risk borrower to lenders in the future.

Dealing with Credit Report Errors

Sometimes there will be errors on your credit report. You can identify these by requesting a copy of your credit report and then reporting anything that you believe to be a mistake. You will need to contact the credit provider listed on the report as well as the credit bureau.

Don’t be lulled into thinking that credit report errors are something that may not have happened to you. Fox Symes estimates that approximately 1 in 4 credit reports contain errors, some a result of things as innocuous as a misspelled name. These may seem like small things but often they can have the greatest bearing on a credit report.

Be sure to request access to your credit file, either for free or by taking out a subscription service, and report any errors and get them removed.

If You Have Access to Credit Now, Keep Up Repayments

If you have a bad credit rating but still retain access to some forms of credit, it is important that you’re using these wisely and keeping up with your repayment obligations.

Repayment information is maintained on your credit report for a period of two years, and if you’re currently in the process of rebuilding your credit rating already, it is crucial that you don’t inflict damage by missing payments.

You should also be careful with your spending to ensure that credit cards aren’t ‘maxed out’ and that you’re otherwise not overextending your financial means. Lenders are also able to view your current access to credit as well as the credit limits associated with these, and while repairing your credit rating you want to show you’re in control financially and are a responsible borrower.

Repayment information is maintained on your credit report for a period of two years, and if you’re currently in the process of rebuilding your credit rating already, it is crucial that you don’t inflict damage by missing payments.

Remove and Stop Using Troublesome Credit

If you know you’re the type of person that struggles to control their spending, particularly on a credit card, then you should look to stop using them immediately. Credit cards and similar types of credit such as store cards can have high interest rates, and debts can quickly add up and spiral out of control.

Depending on your level of self-discipline and confidence you might even want to cut a card up or ask a family member to take possession of it.

Close Credit Accounts You Don’t Use

If you have access to any forms of credit you don’t need or use, contact the credit provider and close these accounts.

Taking this step will ensure that credit providers don’t look at your credit report and see masses of unused credit when assessing an application. It also has the added bonus of removing any temptation you may have to spend.

Planning to Pay

Although the most serious credit infringements will remain on your credit report for five to seven years even if you pay them, you should still plan to clear these debts as soon as you can.

If your credit rating is so low that you would not be accepted for a debt consolidation loan, you may need to speak directly to your creditors to come up with a payment plan. As long as you are open and show a desire to repay your debts, most credit providers will be happy to accept a repayment plan, and you should have no further problems as long as you keep up with payments.

Improving a Bad Credit Rating

Unless you have been the victim of fraud or there are other errors held on your credit report, it is unlikely that there will be a quick fix for improving your credit rating.

By taking a responsible outlook to your finances and working towards paying any existing debts, you will start to improve your credit rating over time and make yourself more likely to be accepted for personal loans and other credit services in the future.

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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