But a bad credit rating isn’t a financial death sentence, and there are several ways to bounce back and revive your score.
Why do I have a bad credit score to begin with?
There are a wide range of factors that can contribute to a low score and often people don’t even realise their behaviour is negatively influencing it. Don’t stress, it can happen to anyone and if you’re reading this then you’ve already taken the first step to improving it. These factors may include:
- Lack of financial management – this includes any negative or neglectful financial behaviour, such as:
- Not paying bills on time or not paying at all
- Missing on loan repayments
- Failure to update contact details
- Making too many applications for credit
- Defaulting a loan
- Having your home foreclosed
- Any court judgment on financial payments
- Reporting errors by the credit agency – this can happen on occasion! Sometimes the agency has incorrect personal information, debt information entered multiple times or incorrect amounts of debt recorded, so it's important to check all the details.
- Errors made by the credit provider – sometimes your bank or credit provider can make mistakes too, like poor communication relating to unpaid debt, or accounts created through identity theft, so it is worth checking all the details.
What are the consequences of a low credit score?
Your credit score stays with you and there is no reset button so it’s important not to ignore a low credit score.
There are numerous situations in which a poor credit rating could be a problem in the future and you should know that a low score could mean:
- You might not be approved for credit or loans
- It could be difficult to get approved for a mortgage
- You may have to pay higher interest rates for loans
- Loan applications to start a business could be denied
- It may be hard to finance the purchase of a new car
- Utility and telco providers may not accept your application to switch to them
- Your applications to rent property, whether residential or for business, could be denied
So, how can you fix your credit score?
While your credit score may be a lot lower than you would like, it doesn’t have to stay that way.
Here are five easy things you can do to improve your credit rating:
- Know your score
This might sound obvious, but you need to know exactly what you’re working with. Order a credit report from more than one credit reporting body (as the score can vary slightly depending on what information they hold).
- Check for errors
It’s a good idea to check all of your personal details are correct including your name and date of birth, to make sure that the credit report is correctly referring to you and your financial history. Also make sure the credit reporting body has all the right information regarding your finances so that no debts are accidentally duplicated, plus double check the amounts for each debt listed.
Next, contact your bank or credit provider and ensure they correctly notified you of all unpaid debt, check that any listed debt is categorised as ‘in dispute’ rather than ‘outstanding’ and make sure all the debt is actually yours, and that you’ve not been a victim of identity theft or fraud.
- Fix your mistakes
Seemingly little things like late payments and unpaid bills can make a difference when it comes to your credit report. Get on top of these as soon as possible and you can improve your credit score in the long run.
- Get better at managing your finances
It’s not just about past payment! Make sure you’re also staying on top of things now and in the future. Try to make sure your credit card repayments are on time, pay bills on time, and carefully manage your monthly budget. It’s also a good idea to hold off applying for any new credit or loans and lower the limit on any credit cards you currently hold, depending on your circumstances.
- Show lenders you’re good with loans
Having some debt and showing you can manage it responsibly is a great way to boost your credit score and show lenders that you’re a good bet. Having a ‘healthy’ amount of debt, especially a home loan, is helpful – but make sure you stay 100% on top of the repayments at all times.
How long does it take to fix your credit score?
It all depends on the reason for the low score. If it’s a reporting error on the part of the credit agency or your credit provider, then you will see a fairly quick improvement. If you need to clean up your finances, then it will take longer.
If your actions continue to result in the addition of negative information to your report (e.g. by missing credit card or loan repayments) even while making other fixes, then you may not see a positive change in your report.
To speed things up, try paying off any large credit card debt on or before the due date and correct any errors you spot on your report.
Check your credit score today with H&R Block MoneyHub
Don't put off checking your credit score - especially if you think it will be low!
The sooner you have all the information, the sooner you can start rebuilding your rating.
The information in this blog post is general in nature and does not constitute personal financial or professional advice. It is not intended to address the circumstances of any particular individual. We do not guarantee the accuracy and completeness of the information and you should not rely on it. Before making any decisions, it is important for you to consider your personal situation, make independent enquiries and seek appropriate tax, legal and other professional advice.
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