Build up your credit history: 6 easy steps

Despite what you may think, sooner or later you’re going to need a loan of some sort. Before you apply, stop and think about your credit worthiness. Have you recently moved to Australia? Are you young and just branching out into the wide world of finance? Do you have a poor credit history for various reasons?

Don’t wait until you have credit knocked back to think about your credit history and what you can do to improve it. Lenders, understandably, need some sort of independent reassurance that you will pay back the money. Part of their assessment of the credit risk you may pose will include accessing your official credit file, with your permission, of course. Your credit file shows all credit applied for by you, plus all overdue accounts listed as either a default or clearout.

When a lender looks at your credit file, it can ring alarm bells but with a little more attention from you, it can also be your best ally when applying for a loan.

1. Start small. If you have no official credit track record, start establishing one. A mobile phone plan, electricity account, internet or Foxtel account in your name can be helpful as proof of payment commitments.
2. Punctual payments. Pay your bills on time. It’s a simple but effective way to establish your reliability in the eyes of a potential lender.
3. Job stability. If you have passed the probation period at your current place of employment, you can start demonstrating staying power, particularly if you are new to the country.
4. Fixed abode. Proof of long-term residential address, such as rent receipts, can help allay nomadic fears by the lender.
5. Bank buddy. Start actively building a relationship with your bank. Have your wage paid directly into your bank account and conduct the account properly, avoiding overdue fees.
6. Plastic power. A credit card is easier to obtain than a loan, so use this avenue to build up a track record of perfect repayments minus penalty fees.

Building up a good credit history requires diligence but it will pay dividends in the long run. You can, of course, always take a short cut and borrow through a smaller loan company Small loan companies generally offer a different service to the bigger financial institutions, as they accept higher risk customers, and can therefore charge high fees and set higher interest rates. Fees can sometimes be up to fifty percent of the loan amount, on top of interest, and you could end up paying back almost double the amount you borrowed.

Additionally, these small loan companies can impose a minimum repayment time of about six months, meaning that even though the loan is small, you cannot pay it back quickly, and therefore you will accumulate a substantial amount of interest. After taking all of this into consideration, many people decide that for such a small amount, the loan is not worth it. However they still face the problem of needing a larger loan sometime in the future, and before they can do this, they need to build up their credit history. Back to square one! There’s no getting around it, so why not start work on establishing or cleaning up your credit history today?

Checking your current credit history is easy. Simply go to Veda Advantage’s website - http://www.mycreditfile.com.au/ - for more information on credit files. You can purchase a copy of your personal credit file for $27 and it will be posted, faxed or emailed to you promptly. It is then a matter of keeping your credit reputation in good shape for future use.

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