How to improve your credit score
If you’re struggling with getting finance because your credit score has taken a hit, we may still be able to help – TALK TO US TODAY!
There are many ways that you can improve your situation in the longer term, it takes a bit of patience and some discipline, but it is do-able. Here are some tips that we’ve put together that can get you on the road to credit recovery.
Don’t miss your repayments
The key to a good credit rating is demonstrating that you’re reliable and can manage your repayments. If you prove that you can make regular payments, then you become a better credit risk meaning that you may be eligible to apply for finance further down the track at lower interest rates.
Setting your repayments to line up with your pay day and paying these first, will ensure that you don’t default.
Contact your loan provider or finance company to advise them if you are struggling or cannot make a repayment.
Late fees and penalties can add up and cost you more in the long run so do what you can to avoid those additional costs.
Communicate with your lender if you are at risk of defaulting
Life often throws us a curveball and we end up with unexpected expenses. If something comes up and you’re going to struggle to make your payments, be pro-active and call your lender. They may be able to help you with a debt holiday period for a couple of months or reduced payment amounts for a fixed period to enable you to get back on track. That way you will avoid defaulting and having a black mark on your credit score. Defaults can affect your credit score for up to 5 years. (Source BNZ website)
Pay off any outstanding loans before you sign up to more debt
Set a target to reduce existing loans before taking on more debt. By adding more debt you’re risking not being able to maintain payments at the required levels, which will negatively affect your credit rating.
Before taking on more debt ask the question- “do I need this, or do I just want it”?
Be honest with yourself- you’ll find that you will be able to prioritise what’s important more easily and avoid impulse purchasing. If there is something you really want to have, you could set a goal to purchase it once you’ve paid off your existing debt. You’ll probably enjoy it more when you can see all your hard work has paid off!
Consolidate your existing debts into one easier-to-manage repayment
If you find yourself struggling to manage multiple repayments for loans, hire purchases and credit cards a debt consolidation loan could be for you! By consolidating your debts you are effectively rolling all of your debts into one easier to manage repayment. You will also be locking in one interest rate for the term of the loan avoiding any uncessary suprises.
All lenders allow you to repay your loan off quicker, with some not charging any additional fees to do so – By repaying the loan off quicker you will save on the total interest charged.
Don’t max out your credit cards
If you are always close to hitting your limit on your credit card, then you are damaging your credit score by having a high debt to credit ratio. This is something that lenders look at if they are assessing your risk to them. For example, if you have a $5000 limit and your credit card balance is $1500 your debt ratio is 30% which is considered a positive level. If your balance is $4000 then your debt ratio is 80% this could have a negative impact.
The higher your ratio the higher risk you present to lenders and this can negatively affect your credit score. So, keep an eye on your credit card balances and where you can, pay them off every month or try to occasionally put in a lump sum payment over and above your minimum payment amount to get the balance down.
Know what your credit score is
The best starting point is to know where you stand. You can find out what your credit score is by requesting a report from the following organisations, who keep records on your credit and make this information available to lenders.
From there you can set up a plan with your lender, a budget advisory service or family advisor to improve your situation and to obtain finance in the future.