5 tips to improve your credit score

5 tips to improve your credit score

It’s not a number you may think about often, but your credit score defines your creditworthiness to a lender.

In other words, reputable lenders evaluate how likely you are able to pay back a loan based on your past financial conduct. Generally, big banks have stricter criteria when assessing loan applications, especially in slower economic times.

The lower your credit score, the more likely a lender may decline you, as they may believe you could have trouble paying off a loan. Lender rejections contribute to a lower credit score, making it difficult for some to escape the cycle of weak creditworthiness.

The higher your credit score, the higher your chances of getting approved for a loan. Not only that, those with stronger credit records may be able to save money in the long run as reliable borrowers are coveted by reputable lenders.

If you don’t know what your credit score is, it might be a good idea to find out, as one day you may find yourself urgently needing to improve your rating for a loan application.

Here are some tips to give your credit score a boost and ensure your future loan applications are rock solid.

  1. Check your credit report – As your credit score is based on the information in your credit report, it’s worthwhile to understand it. Look through and make sense of how each listing might have contributed to your credit rating. There’s also the chance that errors have been made by either a lender or the credit reporting agency. If that’s the case, get in touch with the relevant body and request an amendment.
  2. Don’t make too many loan applications – Refrain from making multiple loan applications in a short span of time. Every loan application you make and every rejection you receive will appear on your credit history. These listings can make you look unreliable to future lenders.
  3. Work on your existing debts – Being debt-free or having fewer debts is a plus to lenders when assessing loan applications. If you’re in a position to, try getting rid of any existing debts you have. You can do this by making contributions on top of your minimum repayments. Keep in mind some lenders may charge fees when you make extra repayments.
  4. Build your savings – Another thing that will give lenders a positive impression is having a nice stash of cash in the bank. As lenders usually need to see your bank statements from the past three months, a track record of consistent savings will pay off when you apply for a loan.
  5. Don’t make late payments – You might think you’re safe by not missing any payments, but late payments may still weaken your credit score. If being tardy can cost you money in the long run, it could be worth your time to be punctual with your mortgage repayments, rent, credit cards and utility bills.

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What is a credit rating/score?

Your credit rating or credit score is a number that summarises how credit-worthy you are based on your credit history.

The lower your score, the more likely you are to be denied a loan or forced to pay a higher interest rate.

Does refinancing a personal loan hurt your credit score?

Personal loan refinancing means taking out a new loan with more desirable terms in order to access a more competitive interest rate, longer loan term, better features, or even to consolidate debts.

In some situations, refinancing a personal loan can improve your credit score, while in others, it may have a negative impact. If you refinance multiple loans by consolidating these into one loan, it could improve your credit score as you’ll have only one outstanding debt liability. Your credit may also improve if you consistently pay the instalments on time.

However, applying to refinance with multiple lenders could negatively affect your credit if your applications are rejected. Also, if you delay or default the repayment, your credit score reduces.

Is it hard to improve your credit score?

It can be hard to improve your credit score, as it usually requires sacrifice and discipline, but hard doesn’t necessarily mean complicated. Some simple ways you can give your credit score a boost include closing extra credit cards, reducing your credit card limit, pay off any loans and make loan repayments on time.

As a general rule, the lower your credit score, the more remedies you can apply and the greater the scope for improvement.

What causes bad credit ratings/scores?

Failing to repay loans and bills will damage your credit score. So will falling behind on your repayments. Your credit score will also suffer if you apply for credit too often or have credit applications rejected.

Can students with no credit history get loans?

It is possible for students with no available history of borrowing or managing money to get a personal loan, though it may be more difficult as well as expensive than for borrowers with a good credit history.

Having no credit history means having no credit score. While many lenders may consider having no credit score to be better than having a bad credit score, they may still consider it riskier to lend to an unknown borrower and may charge higher interest rates or fees than to borrowers with good credit scores.

How can I improve my credit rating/score?

Your credit score will improve if you demonstrate that you’ve become more credit-worthy. You can do that by minimising loan applications, clearing up defaults and paying bills on time.

Another tip is to get the one free credit report you’re entitled to each year – that way, you’ll be able to identify and fix any errors.

If you want to fix an error, the first thing you should do is speak with the credit reporting body, which may take care of the problem or contact credit providers on your behalf.

The next step would be to contact your credit provider. If that doesn’t work, you can refer the matter to the credit provider’s independent dispute resolution scheme, which would be the Australian Financial Complaints Authority (AFCA).

AFCA provides consumers and small businesses with fair, free and independent dispute resolution for financial complaints.

If that doesn’t work, your final options are to contact the Privacy Commissioner and then the Office of the Information Commissioner.

Which lenders offer bad credit personal loans?

Several dozen lenders offer bad credit personal loans in Australia. These are generally smaller lenders that aren’t household names.

Can I get guaranteed approval for a bad credit personal loan?

Few, if any, lenders would be willing to give guaranteed approval for a bad credit personal loan. Borrowers with bad credit histories can have more complicated financial circumstances than other borrowers, so lenders will want time to study your application. 

It’s all about risk. When someone applies for a personal loan, the lender evaluates how likely that borrower would be to repay the money. Lenders are more willing to give personal loans to borrowers with good credit than bad credit because there’s a higher likelihood that the personal loan will be repaid. 

So a borrower with good credit is more likely to have a loan approved and to be approved faster, while a borrower with bad credit is less likely to have a loan approved and, if they are approved, may be approved slower.

What is credit history?

Your credit history covers everything to do with applying for loans. It includes the number of loans you’ve applied for, the amounts you’ve borrowed and your record of meeting repayment schedules.

What is bad credit?

A person is deemed to have ‘bad credit’ when they have a poor history of managing credit and repaying debts.

What causes bad credit history?

Bad credit history is caused by filing for bankruptcy, defaulting on your debts, falling behind on your repayments and having loan applications rejected. Lenders are wary of borrowers who demonstrate this sort of behaviour because it suggests they might struggle to repay future loans.

Borrowers with bad credit may find it more difficult to be approved for a loan, or they may get higher interest rates when they do get approved.

What is an unsecured bad credit personal loan?

A bad credit personal loan is ‘unsecured’ when the borrower doesn’t offer up an asset, such as a car or jewellery, as collateral or security. Lenders generally charge higher interest rates on unsecured loans than secured loans.

What is debt consolidation?

Debt consolidation is the process of rolling several old debts into one new debt, usually to save money or for the sake of convenience.

What are the pros and cons of bad credit personal loans?

In some instances, bad credit personal loans can help people with bad credit history to consolidate their debts, which can help make it easier for them to clear those debts. This is because the borrower might be able to consolidate several debts with higher interest rates (such as credit card loans) into one single debt with a lower interest rate and potentially fewer fees.

However, this strategy can backfire if the borrower spends the loaned funds instead of using it to repay the new loan. Another disadvantage of bad credit personal loans is that they have higher interest rates than regular personal loans.