A few smart strategies can help you keep your credit score healthy.
1. Make payments on time and increase your score
Not so long ago, only negative details, like missed loan repayments, were noted on credit reports.
This changed in 2017 when the Comprehensive Credit Report (CCR) was introduced. This means that positive milestones, such as on-time refunds, are also recorded.
Experian estimates that many Australians would have seen their credit score increase by 3% as a result of the CCR.
This highlights the value of staying on top of refunds. You won’t score brownie points for paying extra, but aim to at least pay the minimum.
2. Avoid repeated late payments
Late payments are recorded on your credit report if you are at least 14 days past the due date.
Equifax says a single late payment won’t go down too badly with lenders, but repeated lateness can suggest you’re in financial trouble.
If you are late, try to settle the payment as soon as possible. If you dispute a payment, it’s better to pay first and resolve the issue later than risk hurting your credit score.
3. Don’t dodge debts – they will lower your score
Failure to fully pay debts, known as defaulting, can lower your score by up to 60 points. Defaults are only recorded if they are over $150 and at least 60 days past due, but the default stays on your credit report for five years.
“A default can be quickly erased from your credit file if your credit provider made a mistake or something happened, like a natural disaster, that prevented
you pay back,” says David Marshall.
If you just haven’t paid, it’s important to settle the debt. “The default will still show up on your credit report, but at least your report will be updated with a note that the debt has been paid,” he says.
If you know it will be a problem making a payment, contact the lender immediately. Jack Talbot says that just hoping the problem goes away is the worst thing you can do.
“A lender will be very sympathetic to a customer who is proactive with their issues,” he advises. “Whenever you have a problem, call the lender. They’ll be happy to negotiate to get you back on track.”
4. Limit the number of debts
Overextending yourself with debt can hammer your score. It’s not so much a problem to have a large debt as a mortgage.
The danger zone may have
a large amount of small debts such as credit cards.
As an indication, Experian found that among Australians with more than seven credit cards, almost one in five had been overdue with payments in the last six months. On the other hand, less than 3% of those who have only one credit card are overdue.
5. Minimize credit inquiries
Applying multiple times for loans or credit can lower your score by up to 150 points. This is because it may suggest that you have been rejected by other lenders or are in desperate need of money.
Worse still, loan applications can stay on your credit report for up to five years.
So don’t cast a wide net and apply for multiple loans in hopes that at least one will be approved. It is best to wait until you have found the right loan before making a formal request. Or talk to a broker to help you find the best loan and lender for your situation.
6. Take it easy, buy now, pay later
Buy now, pay later Providers like Zip, Klarna or Humm may check your credit report before approving your account.
Additionally, they may choose to notify credit reporting agencies if you are late or in default, which could lower your score.
Also keep in mind that if your BNPL account is linked to your credit card, over-purchasing may result in late card payments. This will be noted on your credit report and will lower your score.
7. Choose a co-borrower carefully
We each have a personal credit score, regardless of our marital status. Getting married will not see your combined scores – there is no joint credit score.
However, if you and a spouse or partner apply for a loan as co-borrowers, each of your scores may be impacted.
When it comes to a joint loan, your spouse/partner’s financial behavior has the potential to lower your credit score.
This is especially the case if they can’t or won’t contribute to refunds, leaving you heavy with the lot (see “Getting back on track after a desperate decision”).
8. Keep lenders up to date with your contact details
If you change your address, don’t forget to give your new details to the bank, the telephone company and the electricity company.
Keeping credit grantors up to date with your address means you’ll continue to receive bills, reminders, and overdue notices for all of your credit accounts.
These sweet — and not-so-sweet — reminders can help prevent your credit score from being hit by a late payment or default.
9. Use direct debits to keep your bills in check
One of the easiest ways to control bills and reimbursements is to set up regular direct debits.
Schedule payments to match paydays when there’s a lot of money in your account and it’s hard to get it wrong. But surprisingly few of us use this option.
The Reserve Bank says BPAY and online bank transfers still account for less than 5% of total payments.
It costs nothing to put bill and loan repayments on autopilot, and it can be an easy way to give your credit score a slight boost over time through positive reports. If you don’t know how to set up direct debit, contact your bank.
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