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How to repair your credit score

How to repair your credit score

Swiping your credit card to buy that new laptop may have felt great in the moment but your lender doesn’t care that your purchase improved your happiness; they care that you pay your monthly invoices – with interest.

Having a bad credit score can sometimes feel like a life sentence. However, there are ways to get your credit score back on track.

If you want to find out your credit score, click here.

If you’ve got bad credit and want help,click here.

What is a credit score?

A credit score is a rating that reflects your history of managing credit – things like credit cards, personal loans, phone plans and other types of loans or buy-now-pay-later schemes.

A high number means you’ve got a good history of managing credit, which means banks should feel confident you will repay any loan they might give you.

A low number means you’ve got a bad history of managing credit – therefore banks might regard you as a risk and be unwilling to lend you money.

Click here to check your credit score.

What is a credit report?

A credit report is a document that outlines your credit history.

It includes information like how many loans you’ve applied for, how successful you’ve been at repaying those loans, and any defaults or bankruptcies.

A credit report also includes personal information such as your date of birth, address and employment history.

Click hereto check your credit score.

Check for mistakes

It’s not uncommon for credit reports to contain mistakes. One of the most common errors can involve your name being credited with the debt of a family member or stranger with a very similar name to yours.

Australia’s financial services regulator, ASIC, provides a detailed explanation on how to fix incorrect information on your credit report, and how to contact an ombudsman if you need help.

Five steps to improve your credit score

  1. Get the most up-to-date version of your credit score
  2. Check for mistakes
  3. Pay off your existing debts
  4. Completely cancel your credit card
  5. Add positive information to your credit report

Click hereto check your credit score.

Pay off your existing debts

This may seem like an obvious step but it’s very important for getting your credit score in order.

If you have multiple sources of debt (credit card, car loan, personal loan, etc) you should budget to pay it off. Once you know how much you owe, you should set money aside to pay one debt off at a time, starting with the debt with the highest interest rate. If you have any additional cash left over at the end of your pay cycle, it might be a good idea to put it towards the debt as well.

If you have troubles paying your bills on time, you can set up a direct debit with your bank so your credit card and other bills are paid before the due date. Putting your payments on autopilot removes the stress of having to remember multiple debit dates for various bills.

Mobile banking apps

Mobile banking apps such as Pocketbook also help users pay off existing debt by detecting regular bill payments, notifying you of upcoming bills and auto-categorising your transactions. Their ‘Safely Spend’ feature helps you limit your weekly or monthly spend, so you can budget without stress.

Completely cancel your credit card

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Paid off your outstanding credit card debt but don’t trust yourself to keep using the card? It’s time to give it the chop.

While physically cutting your credit card up may be a therapeutic and symbolic way of removing it from your life, you’ll need to close off your account completely to ensure you don’t further damage your credit rating.

If you have a rewards card, once you’ve paid the outstanding balance you’ll want to transfer any existing points to your frequent flyer account and/or redeem the reward points. Then you should contact your lender to advise you want to cancel. Your lender may approve your cancellation over the phone by confirming your identity, although some may request a written cancellation request. If they do not take phone cancellations, simply write to your lender advising you want to cancel and close the account, including your credit card number and account details in the letter. You should receive a cancellation confirmation via mail.

It is also crucial you cancel all direct debits linked to your credit card as this can reactivate your cancelled card. Once the account is well and truly closed, you can destroy your credit card.

Would a card with a lower interest rate or higher amount of interest-free days would suit you better? Compare different credit card options now.

Who offers credit reports?

Australia has four different credit reporting bureaus, all of which offer credit reports. They are:

  • Equifax (formerly Veda Advantage)
  • Experian
  • Illion (formerly Dun & Bradstreet)
  • Tasmanian Collection Service

Click hereto check your credit score.

Add positive information to your credit report

There are various ways you can show creditors you are a reliable borrower. But did you know there are also ways you can show lenders you are reliable, without paying off debt?

Lenders look for stability in your personal and financial life. If you:

  • are married
  • are a homeowner
  • have lived at the same address for several years
  • have been with the same employer for several years

…these factors all reflect positively on your credit record. If you believe that this information has not been included in your report, you can notify credit reporting agencies to include it.

Stay on course!

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You’ve paid off your debt and you’ve cancelled those tempting credit card accounts – congratulations!

Moving forward, make sure you maintain the good habits you’ve developed while repairing your credit history. Keep track of your transactions, budget and save effectively, auto-pay your bills and try to show lenders you have a stable financial and personal life.

Want to find out your credit score? Click here.

Got bad credit and want help?Click here.

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Fact Checked -

This article was reviewed by Property & Personal Finance Writer Nick Bendel before it was published as part of RateCity's Fact Check process.

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Learn more about credit cards

How easy is it to get a credit card?

For most Australians, there are no great barriers to applying for and getting approved for a credit card. Here are some points that a lender will consider when assessing your credit card application.

Credit score: A bad credit score is not the be all and end all of your application, but it may stop you being approved for a higher credit limit. If your credit score is less than perfect, apply for the credit limit that you need, rather than the one you want.

Annual income: Most credit cards have minimum annual income requirements. Make sure you’re applying for a card where you meet the minimum.

Age & residency: You need to be at least 18 years old to apply for a credit card in Australia, and most require that you are an Australian citizen or permanent resident. However, there are some credit cards available to temporary residents.

Do you need a credit card to get a loan?

You do not need a credit card to get a loan, but you usually need to have a credit history. Without a credit history, a financial institution cannot assess your ‘credit worthiness’, or your capacity to pay off the loan.

If you don’t have a credit card, your credit history can reflect any record of paying off an asset. Without any credit credit history, you’re limited in the type of loans you can apply for. But you may be able to obtain a secured loan against an asset. For more information on improving your credit score, go here

What should you do if your credit card is compromised?

Credit card fraud is a serious problem. If your credit card is compromised and you’re wondering what to do, here are a few precautionary steps to take.

Contact you credit provider – Get in touch will your credit card provider. If you feel your card has been compromised, you should be able to lock or block it.

Monitor your accounts – Keep an eye on your credit card accounts. Any unauthorised transactions could be a sign your credit card has been compromised.

Check your credit rating – It’s also important to check your credit rating, to ensure you’re not a victim of identity theft or some other financial mischief.

How do you use credit cards?

A credit card can be an easy way to make purchases online, in person or over the phone. When used properly, a credit card can even help you manage your cash flow. But before applying for a credit card, it’s good to know how they work. A credit card is essentially a personal line of credit which lets you buy things and pay for them later. As a card holder, you’ll be given a credit limit and (potentially) charged interest on the money the bank lends you. At the end of each billing period, the bank will send you a statement which shows your outstanding balance and the minimum amount you need to pay back. If you don’t pay back the full balance amount, the bank will begin charging you interest.