How Can You Fix a Bad Credit Rating?

April 27, 2017

How Can You Fix a Bad Credit Rating?

There are many Australians who don’t know what their credit rating is or just what information their credit file holds. So, when they apply for a home loan they are unaware of any negative records listed on their file. However, they can obtain a copy of their credit file prior to loan application to improve their loan approval success. Let’s look at how you can achieve this.

What is Your Credit Report?

Your credit report contains your financial history. This information dates back years and allows a lender to access your ability to repay a loan. It also enables lenders to access their level of risk and determine if you suit their lending criteria. Consequently, if your credit score is high with no negative history, then a lender is likely to approve your loan.

Nevertheless, if you’ve never applied for credit before then you may have non-existent credit history. As a result, a lender may be hesitant to offer you a loan. Furthermore, if you have a history of loan and bill defaults, then a lender may also decline your finance. So, how can you fix a poor credit rating?

Know How Long Information Stays Current

Information on your credit history stays current for a number of years. Therefore, it’s important to know how long this information stays on file. For example, personal information such as your name, address, driver’s license number and employment history stay on file for life. Your repayment history, however, typically last for two years. Whereas credit inquiries, overdue account repayments and loan defaults stay on your file for five years. In addition, serious credit infringements such as insolvency and bankruptcy can stay on your file for up to seven years. Knowing this information will help you to time any loan application to improve your chance of approval.

Repairing Your Credit Rating

If you have a negative credit score or blemishes on your credit report, then there are ways you can repair these. Let’s look at how you can achieve this now.

  1. Firstly, obtain a copy of your credit report as often these contain errors.
  2. Review your report and check for any discrepancies.
  3. Check your personal details.
  4. Then look at defaults and judgements.
  5. If you find errors, contact the credit reporting agency in writing and list the errors. Provide proof to substantiate your claims.
  6. If your documentation supports these claims, then your report will be updated.

Improving Your Credit Rating

Should you find it difficult to meet your credit obligations, then look at ways to remedy this. Some excellent ways to repair your credit include:

  1. Debt consolidation – Having many loans and credit accounts is difficult to manage, so consider consolidating your debt. You can do this by taking out one loan that pays out your other credit obligations. Hence, you’ll reduce many repayments to just one so you’ll find it easier to manage.
  2. Direct debit – Managing bills is important. So, if you’re forgetting to pay them when they’re due, then consider paying via direct debit to avoid late payments.
  3. Add more information – Often your credit report doesn’t include information such as marriage, long-term employment or owning your home. Thus, add this information to your credit report as these are all aspects that a lender considers as risk reducing.
  4. Start building a sound rating – When your credit history isn’t favourable, you can start building your rating. An excellent strategy to achieve this is to spend less than you earn, and then paying off your debt. Also, avoid making any late repayments on bills and loans. Monitor your spending, and work on developing ways to reduce any existing debt and to start saving more.

Do you need to consolidate debt? Refinancing your home loan could help you achieve this while saving you money over the life of your loan. Get your free Refinancing Report to see if you could save.

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