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 here to 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 here to 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 here to 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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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.

How to pay a credit card

There are a few ways to pay a credit card bill. These include:

  • BPAY - allows you to safely make credit card payments online.
  • Direct debits - set up an automatic payment from your bank account to pay your credit card bill each month. You can choose how much you want to pay of your credit card bill when you set up the auto payments.
  • In a branch.
  • Via your credit card provider's app.

How do you use a credit card?

Credit cards are a quick and convenient way to pay for items in store, online or over the phone. You can use a credit card as a cashless way to pay for goods or services, both locally and overseas. You can also use a credit card to make a cash advance, which gives you the flexibility to withdraw cash from your credit card account. Because a credit card uses the bank’s funds instead of your own, you will be charged interest on the money you spend – unless you pay off the entire debt within the interest-free period. If you pay the minimum monthly repayment, you will be charged interest. There are many different credit card options on the market, all offering different interest rates and reward options.

What should you do when you lose your credit card?

Losing your credit card is a serious situation, and could land you in financial trouble. Here is a simple guide detailing what to do when you lose your credit card.

Lock you card – Contact your provider and inform them about your lost credit card. From here lock, block or cancel your card.

Keep track of transactions – Look out for unauthorised credit card transactions. Most banks protect against fraudulent transactions.

Address recurring charges – If your card is linked to recurring charges (gym membership, rent, utilities), contact those businesses.

Check credit rate – To ensure you’re not the victim of identity theft, check your credit rating a month or two after you lose your credit card.

What happens if I have a bad credit score?

If you have a bad credit score, you might encounter two main problems. First, the lower your credit score, the more likely you are to be rejected when you apply for a loan or any other credit product. Second, if your application is accepted, the less likely you are to qualify for the lowest interest rates.

How do you apply for a credit card?

You can apply for a credit card online, over the phone or in person at the bank. Once you’ve compared the current credit card offers, the application process is quick and easy. Before you get your application started, you’ll need to gather your personal information like proof of ID, payslips and bank statements, proof of employment and details of your income, assets and liabilities. To be eligible for a credit card, you’ll need to be an Australian citizen over 18 and earn a minimum of $15,000 each year. Once you’ve applied for a credit card, you should get a response fairly instantly. If your credit card application has been approved, you should receive a welcome pack with your new credit card within 10-15 days.

Can I get a credit card on part-time/casual work?

Yes, as credit card providers look at your annual income amount as well as your occupation. Minimum income requirements tend to be between $30,000 – $40,000 for standard and rewards credit cards, however low income credit cards can have minimum income requirements as low as $15,000 per year.

Why should I check my credit rating?

There are two reasons you should check your credit rating: so you have a better understanding of your financial position, and so you can take action (if necessary) to improve your credit rating.

Lenders use credit ratings or credit scores to assess loan applications. The higher your score, the more likely you are to get approved, and the more likely you are to be charged lower interest rates and lower fees. Conversely, the lower your credit score, the less likely you are to get approved, and the more likely you are to be charged higher interest rates and higher fees.

Why do different credit reporting bureaus use different scores?

The reason Equifax, Experian and Illion use different scores is because they are independent companies with their own different methodologies. As a result, a score of, say, 700 would mean different things at different credit reporting bureaus.

However, the one thing they have in common is that they divide their scores into five tiers. So if you receive a tier-two credit score from one bureau, you will probably receive a tier-two score from the others, as well.

How do credit cards work?

Think of credit cards as a short-term loan where you use the bank’s money to buy something up front and then pay for it later. Unlike a debit card which uses your own money to pay, a credit card essentially borrows the bank’s money to fund the purchase. When you apply for a credit card, the bank assesses your income and assigns you a credit limit based on what you can afford to pay back. At the end of each billing cycle, which is usually monthly, the bank will send you a statement showing the minimum amount you have to pay back, including any interest payable on the balance.

How to get a credit card for the first time

A credit card can be a useful financial tool, provided you understand the risks and can meet repayment obligations.

If you’re a credit card first-timer, review your options. Think about what kind of credit card would suit your lifestyle, and compare providers by fees, perks and repayments.

Once you’ve selected a card, it’s time to apply. Credit card applications can generally be completed in store, online or over the phone.

When you apply for a credit card for the first time, you must meet age, residency and income requirements. As proof, you must also provide documentation such as bank account statements.