image description

5 Ways You Can Start Repairing Your Credit Rating

If you have a bad credit rating, it is costing you money. This article examines some of the ways you can repair your credit and get back on track

5 Ways You Can Start Repairing Your Credit Rating

A credit report is updated each time that you apply for new credit, whether it's a personal loan, home loan, business loan, or credit card application. All of these factors contribute to your existing credit score, reflected in your credit report.

A credit report provides information about your payment history.

If you typically pay your bills late or are delinquent on your bills, this will reflect negatively on your credit report and can affect your credit score for the worse. On top of that, many people don't realize that a personal credit score will also reflect the payment history of joint loans with a spouse, ex-spouse, or business partner.

A credit score is calculated through a compilation of your credit reports in order to save lenders from having to read a long list of credit documents each time you apply for credit. The average credit score is considered to be 750. If your credit score is significantly lower, a lender may think it is a risky choice to lend you money, meaning that you may be denied for a loan or credit card.

Here is a helpful chart from that depicts how a US credit score is tallied:







While the Australian credit rating system is slowly transitioning to a style similar to the US credit rating system, Australian credit ratings are currently tallied using primarily negative credit history. This may include:

  • Credit applications from the past five years.
  • Overdue credit accounts.
  • Court judgments.
  • Bankruptcy information.

Nonetheless, each lender will make their decision based on their own credit scoring system. Since Australia is moving toward a US style credit rating system, the graph above may be referred to by many lenders offering lines of credit.

If you find yourself in a situation with bad credit that has made you ineligible for a loan, it's important to repair your credit rating right away. You can use the tips below to bring up your credit score and improve your credit report:

  • Check your credit report. You can request one free copy per year of your credit report through major credit bureaus. Reviewing your credit report on an annual basis will help you to check for errors and could prevent total credit destruction as a result of identity theft.

It is more than possible for your credit report to contain errors that you may not be aware of. Take the time to check that there are no delinquent payments listed incorrectly and that all of the balances due on your open accounts are correct. If you find errors, you can dispute them with the credit bureau to improve your credit score.

  • Pay your bills on time. By setting up automatic online payments and scheduled reminders, you can pay all loans and credit cards on time. This will not only help you to avoid late fees that will make your monthly bills even more expensive, but it will help to improve your standing with creditors by reducing delinquencies on your credit report.

Whenever possible, enrol in automatic monthly payments instead of using paper payments, which can be tedious and could get lost in the mail on occasion. Automating your payment is beneficial since more than one third of your credit score is based on payment history.

  • Pay your debt. If you have credit card debt hanging in the balance, it's important to budget and plan accordingly to pay down that debt as quickly as possible. Yes, you may be able to save money temporarily by using balance transfers to switch to credit cards with 0% APR, but eventually, the only way to improve your credit score is to pay off your debt.

You can work with a credit counsellor or debt consolidation agency for large amounts of debt to create a payment plan that will eliminate debt within a certain amount of years. For smaller amounts of credit card debt, it is still important to create a plan to pay off the debt in full to improve your credit rating.

  • Don't shut down old credit cards right away. Roughly 15% of your credit score is dependent on your credit history. If you shut down old credit cards that you have paid off, you will affect your history for the worse.

Instead, keep old credit cards open and charge them once a month. Remember to pay this charge off in full using an automatic payment to prevent any delinquencies. This will help to build upon your credit history to show that you are trustworthy in your ability to pay off debt over the long term. The only exception to this rule would be if you have a serious spending addiction, in which case, closing down all credit cards would be the safest way to minimize debt.

  • Open new accounts and pay them on time. If you have a poor credit history, one way to correct this is by opening new accounts in either loans or credit cards and paying them off on a monthly basis.

When you do this over the long term, it will establish a positive credit history and will help to raise your credit score. However, if you don't think you have the means or the responsibility to pay off new accounts each month, then don't open them. You will only risk damaging your credit score even further if you have delinquencies.

When it comes to repairing your credit rating, credit cards aren't the enemy. Instead, it's important to have credit cards and loans that you pay each month to slowly rebuild your credit. A person who doesn't have any credit cards at all is actually considered to be higher risk than someone who has several credit cards that they pay responsibly.