Are you suffering from a bad credit score and finding it hard to obtain finance?
Well, you’re not alone; there are thousands if not more Aussies who have a bad credit rating ( can’t get a loan ) and need to repair it.
Following is our top 10 tips to improve your creditworthiness.
1) Get a copy of your credit report.
You can download it from the Money Smart Government website here. Once you have this, you need to make sure that your credit file is fair and accurate.
So many people have mistakes in their credit history files. Human errors are common, so you need to conduct a full audit of this report and contact:
- your credit provider to see if they can correct the issue
- the credit reporting agency
- The Office of the Privacy Commissioner – as a last resort. I have attached the link here.
2) Create a good working relationship with your bank
Banks want to see you trading with them. It shows you have a commercial head on your shoulders which reduces the risk of working with you. Open your business account and begin a cash flow history with the bank. Don’t be afraid to initiate conversation or provide email updates, particularly any positive updates, with your relationship manager. Make sure that you always explain any delayed payments and try to meet your payment obligations on time. They will get to know you over time, improving your chances of getting a loan if you ever need it.
3) Get a credit card
Debt is good. And, having a credit card and managing it by paying it off every month on time helps with your creditworthiness. It proves that you can have a solid borrowing history and are mature enough to repay your debts. But, never go overboard with buying things as credit card interest rates are enormous, and a failure to repay your debt will affect your creditworthiness.
4) Stick to 1 or 2 credit cards
Each credit application will lower your credit score. How do you ask? Simple. Because it shows that you rely on external credit providers. Having multiple credit enquiries from different lenders (including multiple credit card companies) is a huge red flag that you need cash, and you are shopping around to get as much as possible.
Unfortunately, banks are keen to get you as a credit card customer but they also penalise you for having a high credit card limit. They will sweeten deals with zero interest rates for the first three months or let you transfer other credit card debts over for free and offer an interest-free period. Avoid falling into these traps, especially if you don’t need the money now or could manage without needing more than 1 or 2 cards.
ASIC tells us that: The most common reason consumers choose to transfer a balance was to manage debt that was getting out of hand (43%). Other reasons included making a transfer to manage a one-off expense (22%), due to a change in personal circumstances (20%), receiving unexpected bills (18%) or a change in income (15%).
Transferring debt is just kicking the can down the road. This type of credit card behaviour does get noticed and will affect credit ratings.
5) Pay your credit card, personal and business loans on time
If you love your shopping or are too busy running your business to remember to pay your loans back every month, you need to have a solid reminder system in place. Paying loans, credit cards and debts on time is a great way to keep your credit score intact and in a healthy position. Forgetting to pay even the smallest credit card debt can result in the banks handing it over to a debt collection agency which will scar your credit rating.
6) Pay all bills on time
The last thing you want is for any of your bills ( this includes all utilities such as gas, electricity and water ) to be handed to a debt collection agency. Not only are they very persistent in chasing you up for the money, but they will damage your credit history. Eventually, these past bills will come back to bite you. Set up direct debits to pay these bills. Solid payment history will show credit agencies you are reliable and can pay off your debts.
7) Various loan types are good
Show financial institutions that you are a safe risk. Get a car loan, bank loan or credit card and pay these off on time.
8) Don’t throw away a rarely used card
Old credit cards are good to have. Keep them without cancelling them, and don’t max them out. Staying within your limit shows the banks that you don’t need the money, can manage your own cash flow and have a functioning savings account.
9) Don’t change living arrangements and jobs often
All lenders want to see some stability, whether it’s your job or your housing. Changing your career often can indicate a level of instability in your life lenders do not like this. They might treat this as a credit risk that may affect your credit rating. Stability and a substantial savings record show that you have a mature approach to your finances, all lenders like to see.
10) Avoid going bankrupt
If you are experiencing financial difficulties in business and can’t pay debts, rent or wages, look at all the alternatives, such as a small business loan, before you even think about declaring yourself bankrupt. Bankruptcy is a credit rating killer and should be your very last option.
Final Thoughts
If you are looking to borrow money for your business or need a bridging loan for a property purchase and are concerned about your credit rating and past credit history, the team at Sparrow Loans can help. We are not overly concerned about your credit history and will be able to arrange a loan for you very quickly to help you get out of those sticky situations.
