Discover the steps you can take to improve your credit history before you apply for your next loan or credit card.
When you apply for a line of credit, the issuer reviews your credit report and score to determine your risk as an applicant. The higher your score, the more likely you are to be approved. If you've been denied a line of credit or want to improve your credit score before you apply, there are a few things you can do to get your financial history in shape.
You can use this guide to order a free copy of your credit report and score, pick up tips for improve your credit history and understand the information that's listed on your credit report.
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How to improve your credit history
Starting with ordering a copy of your credit report, here are some of the ways you can fix your credit score.
Order your credit report and check the details
You can request a free copy of your credit report and score through Finder to get started. The report is provided by Experian and you'll receive an updated score each month, as well as notifications if anything changes on your file.
You can review the listings on your report and identify any information that could be dragging your score down. If you identify any incorrect information on your report, such as invalid defaults or enquiries, you can contact the credit bureau that supplied your report to have it removed. You can also enlist the help of a credit repair agency, but that will come at a cost.
If all of the listings on your credit report are legitimate, you can still get a better understanding of your credit history and the steps you can take to improve your score. You can see our guide to what's included on your credit report for more information on what to look out for.
Make repayments on time
Since the introduction of comprehensive credit reporting, your repayment history is also documented on your credit report. If you miss a repayment, this leaves a negative mark on your credit report. If the overdue amount is $150 or more and unpaid for 6 weeks, it will be considered a default. These can remain on your report for five years.
If the credit issuer tries to contact you and you don't respond, this could then turn into a serious credit infringement which will stay on your report for seven years. This is why it's important to contact your credit provider if you move or if your contact details change. Read this guide to learn more about the difference between defaults and credit infringements.
If you're struggling to pay your bills, this is likely to have a flow on effect and could cause you to fall into serious debt. If you are having trouble paying your accounts on time, you could consider setting up an automatic payment or contact your bank to discuss your options.
Avoid making too many credit enquiries
Shopping around and comparing your options can help you get a competitive deal, but you shouldn't apply for multiple lines of credit in a short period of time. Credit applications are considered hard enquiries and can hurt your credit score.
Only apply for one credit card or loan at a time and make sure you meet the eligibility requirements before you apply. If your application is rejected, order a copy of your credit score and spend some time paying off any existing debts and improving your finances before you try again.
Consider lowering your credit limits and consolidating debts
If you have too much credit, this could lower your credit score. If you review your credit report and realise you're not using all of your credit limit on your credit card, consider contacting the bank to reduce your limit. This could help improve you score and increase your chances of approval when applying for other lines of credit.
If you have multiple loans or credit cards, you could also consider consolidating them with a balance transfer or a loan. That way you're only managing a single account and likely at a lower interest rate, which could help you save and pay off your accounts faster.
All of these money habits can help strengthen your credit score and get your finances back on track. However, the specific strategies you'll need to use will depend on your financial situation and goals. So make sure that you compare your options and do your research when you're repairing your credit score.