A couple of months ago I wrote an article outlining the 3 Big Mistakes You Make That Stop You Getting a Loan. The article highlighted a number of common mistakes you make that negatively impact your credit score. Today’s article highlights 5 Simple Ways to Improve Your Credit Score, so you can obtain the loan you need or the interest rate you deserve.
#1 Check Your Credit File for Errors
An estimated 30% of credit files in Australia contain errors in them. Removing errors in your credit file can be an easy way to improving your credit score. Some common mistakes include:
More serious errors to look out for include:
Removing these errors from your credit file can go a long way to significantly improving your credit score.
You can obtain a free copy of your credit file from Equifax.com.au.
Note: Look out for lenders that make additional credit enquiries for slight variations in your loan application. They may do this despite making an enquiry only the day before. To avoid the risk of duplicate credit enquiries always ask your lender if your credit variation or credit increase will result in a further credit enquiry.
#2 Start Building a Credit Story
The age and diversity of your credit file is an important factor in determining your credit score. For those that have never had a credit contract in their name, consider opening a basic credit account as soon as possible (e.g. a mobile phone contract). For those of us who have an existing credit record, check that your name is on all credit contracts you’re paying for – there may be an old mobile phone contract that’s still recorded under your parents’ names that you should get the benefit of!
In addition to this, having a variety of credit contract types (e.g. a home loan, mobile contract, credit card and/or personal loan) can help improve your credit score in the long run. Obviously, the key is to making sure you manage all these credit accounts responsibly, and making sure that when applying you comply with point #3 below.
#3 Stop Making ‘Bulk’ Loan Applications
Don’t make multiple credit applications across different lenders during a short period of time. It is one of the worst things you can do for your credit score. To the credit bureaus this looks like you lack financial control or are financially desperate. Stopping this behaviour is a great way to improve your credit score.
Always do your research before applying for credit and, if possible, get an early indication from the lender on whether you will be approved for the credit amount you need. For example, with OurMoneyMarket you can obtain a rate quote for a personal loan in minutes, without it impacting your credit score. We’ll also test whether you meet our eligibility criteria so you’ll know if you have a good chance of getting a loan before you proceed.
#4 Take a Break from Applying for Credit
Time heals all wounds. This has never been truer when it comes to improving your credit score. Taking a break from applying for credit will improve your credit score, especially if you have a track record of making multiple applications during a short period of time.
Now, for those that need credit to make a purchase or consolidate debt, this is understandably not a solution, however for those that are frequently seduced by the latest credit card promotions, maybe think twice about whether it is worthwhile in the long run.
#5 Make Payments on Time
It sounds simple, but ensuring all your financial commitments are paid on time is a perfect way to improving your credit score. An easy solution to managing your payments is to establish direct debit arrangements for all your credit contracts.
If you’re finding your existing debt repayments too difficult to manage, consider consolidating your debts into one easy to manage personal loan. You can obtain a free rate quote here.
Understanding how credit scores work can get a bit confusing at times, especially when the best methods to use in order to improve your credit score can appear contradictory. So what are our tips in a nutshell? In short, check your file at least annually for errors, put in place methods to ensure you make all your payments on time and when applying for credit wait for the lender to respond before going elsewhere, or preferably, apply with lenders that offer you a pre-approval process that won’t impact your credit score.
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5 Simple Ways to Improve Your Credit Score – Source: OurMoneyMarket Lending Pty Ltd ABN 64 605 231 669 Australian Credit Licence 488228.