Looking for ways to fix your credit rating? Something that won’t cost you much more than — what you already owe — both financially and mentally!
Credit rating, after all, is that one key factor, which determines whether you will be able to borrow from a prospective lender. The lower your credit score, the riskier you are as a borrower for lenders. And, the riskier you are, the tougher it is for you to find a lender.
Fixing a credit rating, however, is not rocket science, nor is it any form of financial wizardry. It is merely a process that takes some discipline, research and a whole lot of patience — depending on how bad your credit score is.
So we’ve created a handy guide to answer a deceptively simple, if puzzling, question: How to fix a bad credit rating yourself?
How to fix your credit rating?
Credit repair, on its own, is not the end goal you’re pursuing; you might just be looking to apply for a home loan after fixing your credit rating.
Which is why you should keep that in the back of your mind and follow these secret tips to fix your credit score because they are your ultimate do-it-yourself-credit-repair-kit.
- Help yourself because you actually can!
- Order a copy of your credit report.
- Have your incorrect credit listings removed.
- Be patient. It is going to take quite some time.
- Avoid making random credit enquiries.
- Negotiate with your lenders.
- Update your personal details.
- Piggyback on someone else’s credit score.
- Consider debt consolidation.
- Enter into a Part 9 Debt Agreement.
Not sure if you’re a high risk borrower?
Here is our credit score calculator, which can be an excellent guide for you to understand how banks see you as an applicant and why they may decline your loan application.
Tip 1: Help yourself because you actually can!
The first and obvious way to start fixing your credit score is by actually helping yourself get out of any current and future debts.
Some of the things that you should and should not do once you embark on this quest to improve your credit rating are:
- Start by taking control of your finances. Pay all your bills on time and try not to miss any due dates. Did you know, under comprehensive credit reporting, just one missed repayment can reduce your score by as much 22%.
- Reduce your living expenses and adjust your budget to meet the amount of repayments, if any.
- Try and keep your older credit cards as their aged credit history appears better than that of newer ones on your credit file.
- Build your savings by making timely deposits to your savings account, to reflect that you are good with your finances.
Tip 2: Order a copy of your credit report
Did you know you can get your credit report for free?
So, go ahead and order your credit report. Regularly scanning through your credit report will not only keep you updated with your score but also allow you to pinpoint any errors.
Tip 3: Have your incorrect credit listings removed
Remember this: If anything on your credit report is unverifiable, incomplete or inaccurate, it can and will be erased. What you have to do is dispute it with your creditors or credit rating agencies.
But to dispute it, you first need to locate those possible inconsistencies on your credit report. That is why you need to order your credit file and make a habit of going through its details.
Having those incorrect listing removed from your file will undoubtedly help increase your overall credit rating.
Tip 4: Be patient — it is going to take quite some time
Credit repair is a frustrating and tedious process. It takes a lot of researching, budgeting, negotiations and possibly countless bureaucratic hurdles.
So proceed with patience because you are likely in this for a long haul. But you will get there eventually, and your credit score will benefit from your patience.
Depending on the type of listing, it can last up to 7 years on your credit file. Late payments may remain on your credit file for up to 2 years whereas defaults may stay on your report for up to 5 years. So, you probably have to wait it out.
As far as disputes are concerned, when correctly raised, it may take far less time to be resolved. Incorrect listings usually get resolved in 30 working-days from the day you raise your dispute. However, it may take less or more.
Tip 5: Avoid making random credit enquiries
Whenever you apply for credits like home loan, credit card or car loan, you end up adding a credit enquiry on your credit file.
What credit applications do is lower your credit score and hurt your probability of getting loans. The more credit enquiries you make, the more it affects your credit score.
So avoid making random, hasty credit enquiries with several lenders within a short time. Better yet, don’t apply directly for larger credits like housing and investment loans.
Tip 6: Update your personal details
Since your personal details partly contribute to your credit rating, it is a wise idea to keep that information updated with your credit providers. Whenever there is a change of residential address or contact information, you need to inform them.
Doing that will help them redirect all your invoices and payment to your new location so you won’t miss out on any repayments.
We’ve had many customers come to us because of adverse listings on their credit report due to notices and bills being sent to their previous address. And, the lenders ended up listing a default when the customers had simply forgotten to update their address.
A timely update also means your lenders can keep track of you because if they can’t, they will interpret you as a clearout case.
Tip 7: Negotiate with your lenders
Your lenders or the debt collection agency want to collect their debt. That’s why they would rather accept less money than no money at all.
If you’ve missed a few repayments, why not negotiate new, flexible repayment terms with your bank? Banks usually have options such as repayment holidays and financial hardship variations.
If you’ve already defaulted on a loan, you can negotiate new less severe terms. When you’ve repaid your creditors, they may get your negative listing removed from your credit report.
The bad debts usually get passed on to debt collection agencies, who may reduce the debt, if you negotiate.
Tip 8: Go credit card piggybacking with a trusted mate
Say, your brother, who has an excellent credit score, uses a credit card. Now, what you can do here to boost your credit score is become an authorised user on his credit card.
As an authorised user, you get to share his strong credit history, particularly, things like the age of the credit file and payment history. As long as your brother keeps his credit score positive, it will continue to reflect accordingly on your record.
Any late payments or defaults on his part, however, will also hurt your credit rating. So, logically, you should piggyback on someone who, you know for sure, is most unlikely to commit credit infringements.
Tip 9: Consider debt consolidation
When you have many debts on you, it is tough staying on top of each account. But you can consolidate all your debts — credit cards, personal and others — into a single repayment when you apply for a home loan.
Whether you are buying your first home or just looking to refinance,debt consolidation is an option that is always available for you. And, it often comes with competitive interest rates.
You may also be able to consolidate your debts with the help of a guarantor, and borrow up to 110% of the property value.
Tip 10: Enter into a Part IX debt agreement
Part IX debt agreement is a legally binding agreement between your creditors and you as stipulated under the Bankruptcy Act 1966.
Technically, it is the last alternative to bankruptcy whereby your lender formally agrees to accept reduced repayments under new terms and over a new period.
By entering into a debt agreement, you may spare yourself from repaying your entire debt. But you won’t keep yourself from getting listed on the National Personal Insolvency Index (NPII) for the next five years. And, it will also show up on your credit report for the same duration of time.
It is a lesser blow to your credit report as compared to going bankrupt. Plus you can always start repairing your credit.
Is your low credit score keeping you from applying for a home loan?
Just because you have a low credit rating doesn’t mean you can’t apply for home loans.
Sure, the banks won’t qualify you for a mortgage but our bad credit specialist brokers may be able to find you specialist lenders who can consider your situation.
Please enquire online or call us on 1300 889 743 to discuss your situation in detail.