Having a bad credit rating can be very disadvantageous to some Aussies. To start with, it signals to potential lenders, landlords, and even some employers that you may be a high financial risk. This can therefore make it more difficult and expensive to obtain essential services and competitive financial products, such as insurance, a credit card, a home loan, or even securing a rental property.
Thankfully, there are plenty of ways you can turn your bad credit rating around. If yours could use a bit of improvement, here are 10 steps you should take.
What Does a “Bad Credit Score” Actually Mean?
A credit score is a rating or number that is given to you based on your credit history.
When you apply for credit, such as a new credit card, car loan, or home loan, lenders, such as banks and credit card companies, will perform one to assess how much of a financial risk you will be.
These lenders use data from independent credit reporting agencies, such as Equifax, illion, and Experian, that collect your financial history. They are also often used by landlords, real estate agents, or employers (with your consent) to determine your ability to pay rent or perform a specific job with significant financial responsibility.
The report is not a judgment of character. Instead, it records your financial track record. Factors that may appear on it include:
- Missed repayments
- Overdue bills
- Defaults
- How many credit applications have you made
According to MoneySmart, your score will be between 0 and 1000 (or 1,200). The final number will depend on the credit reporting agency.
Tips To Manage Your Bad Credit
In Australia, you can get a free credit check every three months by requesting your credit report from the three main agencies.
Once you have got it, here is what you can do.
Tip 1 – Understand Your Credit Report Thoroughly
Once you have received your report, take your time reading through it thoroughly. In particular, look for anything that doesn’t seem right. This might include outdated listings or bank accounts that no longer apply to you. (For instance, accounts you used to share with an ex-partner)
By understanding your credit history and score, you will gain clarity and direction on what needs to be done to improve it.
Tip 2 – Create a Simple, Realistic Budget
Once you know where you stand, it is a good idea to write down all of your weekly expenses. Start with essentials such as rent, groceries, utilities, debt repayments, and transport. After that, factor in other regular expenses, such as coffees, takeaway meals, and anything else you spend money on.
By doing this, you’ll be able to create a budget that helps you better manage your outgoings moving forward.
Tip 3 – Reduce Your Expenditure
Having established how you spend your money, a good thing to do is to look for ways you can cut out unnecessary expenditure.
You’ll be amazed at some of the things you spend money on, many of which you rarely use, can do without or no longer want. This can include TV subscription services, gym memberships, gambling, convenience foods such as Uber Eats and takeaways, and online purchase.
Just by doing this, you can suddenly find yourself with a bit more money at your disposal.
Tip 4 – Decrease Your Current Debt
When it comes to paying your bills, a good tactic is to prioritise payments that are overdue.
Doing this will help to reduce your current debt and the interest it might be incurring. It may even eliminate some areas completely, which will do wonders for your stress levels.
Tip 5 – Consolidate Your Debts Into One
If you find yourself with several debts that you need to pay off, one clever tactic you might want to employ is to consolidate all of them into one.
Taking out bad credit loans in Sydney with EBP Money or other similar companies can be a good option. If you do this it will allow you to pay them all off and focus on making one, single manageable payment.
This can help you to stay on track of your debt, improve your cash flow, and reduce the risk of you missing payments.
Tip 6 – Pay Your Bills On Time
It is important to get into the habit of paying your bills on time. By doing this, you’ll start to improve your credit score, avoid late fees or interest accruing, and reduce the likelihood of being hit with service disruptions.
Paying bills on time will also help with your budgeting and demonstrate to lenders that you are capable of financial responsibility. A good way to do this is to automate your payments to take place on the day after you get paid. This will reduce the temptation of you spending it.
Tip 7 – Lower The Limit Or Cancel Your Credit Card
Credit cards can be tempting to use. But it can lead you into financial trouble if you are unable to pay their balance off immediately on their due date.
A couple of things you can do to reduce the risk of this happening to you is to ask your bank to impose spending limits, both in terms of per day and transaction. It is also worth reducing your limit as you pay off your debt to provide you with greater protection.
When you eventually manage to pay it off completely, it is a good idea to cancel it immediately thereafter.
Tip 8 – Talk To Your Lender
If you can see that you are struggling to pay off debts it is advisable to talk to your lender. Many have financial hardship or temporary support arrangements in place that can provide you with a bit of breathing space in the short term in the form of a “payment holiday” or adjusted repayment schedule.
Doing this will help you to protect your credit history. It can also be a good way to ease financial pressure during challenging periods.
Tip 9 – Look For a Better Paying Job
If you find that money is tight, then you should look for ways to improve your finances. One way to do this is to look for a better paying job. Alternatively, you could ask your current employer for a payrise, get a second job or even set up a side hustle. Here are some extra ways you can earn cash.
At the end of the day, the more money you can have coming into your household, the easier it will become to manage your bad credit.
Tip 10 – Seek Professional Help
If all else fails, it is advisable to contact professional help. There are several financial counselling services across Australia that can offer you guidance during periods of financial hardship.
These services can help you with things like budgeting, negotiating repayments, and understanding your available options. They can be an excellent way to get you back on track and work towards you achieving a positive credit score.
All images are supplied by the client
