A credit score is necessary to enable you to secure lower interest rate loans with more flexible terms than bad credit loans. Even if you have never had a loan, you will find there is a credit history for you if you have had any bills in your name, such as a phone or utility bill.
The trick is to keep on top of any payments you are required to make, regardless of the amount, to ensure that your credit score is not impacted. If you don’t, it can create issues for you when you wish to apply for necessities such as a car loan or mortgage in the future.
Unfortunately, many people are already impacted by a low credit score. However, this doesn’t mean you can’t take steps to rectify the situation:
1. Knowing your credit score
One of the first things you need to understand is how to check your credit score. Undertaking a credit score check will help you determine just how much you need to improve it. You can access your credit score for free through many online platforms such as moneysmart.gov.au, which also offers a free credit report where you can see the details of how your financial history has resulted in the score you have. This is particularly useful to help understand where you need to focus when trying to improve your credit score. Credit scores range from 0 to 1200. Anything below 510 is considered a bad credit score.
2. Fixing your bad credit
There is a lot of advice out there on how to improve your credit score, so we’ve broken it down into a few categories — minimising requests for new credit, dealing with any delinquencies, consolidating your debts, and using existing methods of credit to your advantage.
Ultimately it is your choice on how you will address any debt or credit score concerns, but implementing one or all of these methods will go a long way to improving your credit score and help you move towards financial security.
3. Minimising requests for new credit
When considering how to get a better credit score, you need to remember that any credit activity that includes applying for loans, credit cards or store credit is included. If it is shown that you are constantly applying — regardless of whether your application is approved or denied — it can adversely affect your credit rating as it is perceived as a lack of financial strength.
Try your best to use cash or your existing credit facilities without adding to your debt levels.
4. Deal with delinquencies
If your credit report shows you have delinquencies, or unpaid debts, catching up on these is an excellent method of how to increase your credit score. We realise this is easier said than done — after all, there is a reason you have fallen behind and that does not just go away with a plan to simply pay your debts.
Depending on your personal circumstances, a few options are available to help do this. One option is to consolidate your debts into a more manageable loan. Another is to speak with the financial institution in question. Though it may not alleviate your debt situation, it could result in more favourable credit score reporting as you are demonstrating ownership of the situation.
5. Consolidating your debts
A debt consolidation loan is the best option when considering loans to boost your credit score. This method works through a new loan that pays off all of your outstanding debts, be they loans, store credit or credit cards. Your credit score will be improved as any of those loans that you may have fallen behind on will be recorded as paid in full. You are now in a position to demonstrate your ability to manage debt with one regular payment to be met.
A consolidation loan is how to improve your credit score quickly. However, you need to be mindful of keeping up to date with the new loan to maintain a good credit score.
6. Using existing methods of credit to your advantage
With this method, we will use a credit card as an example. It does take discipline, but a credit card can be a very effective tool in your quest on how to fix bad debt. Use your card for smaller everyday items you would ordinarily use cash or your bank debit card for such as lunch or petrol.
The trick is to then pay that purchase in full before the first interest rate charges are applied. With online banking, this can be done immediately after making a purchase, so you never forget to pay in time. Just remember though, do not put debts on your credit card that you do not have the funds to cover immediately.
7. The ever-tempting buy now, pay later loans
When shopping for items that are beyond your current budgetary allowances, the opportunity to obtain that desired article to enjoy immediately can be exceptionally tempting but also highly risky.
These types of bad credit loans do not have many qualifying features designed to protect the consumer from spending beyond their financial capacity. You may find yourself completely overstretched if you indulge in two or more loans. Resist the enticement to overspend through the efforts of overzealous salespeople and marketing campaigns.
Remember, they are not interested in your financial stability. They simply want to make a sale.
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