A bad credit history is not the end of the world, but it’s not an easy thing to live with, either. If your credit history is poor and your credit score is low, there are some things you can do to turn it around.
It takes time, but probably not as long as you think, and you’ll see some improvements fairly quickly. Once those improvements kick in, it’ll be much easier to get new lines of credit, apply for loans, and more.
In this blog, we’ll explore some of the ways to improve a bad credit history in Australia, helping you to fix your score and get back on your feet.
Your credit history is a record of all your active accounts, with information pertaining to repayments, settlements, defaults, and more. It constitutes a sizeable part of your credit score and if it’s “bad”, which is to say that you have many negative marks or very few positive accounts, you may have a bad credit score as well.
If that’s the case, it will be harder for you to get new lines of credit. Simply put, lenders will deem you to be a sub-optimal borrower, one that may not repay the loan in full, and this increased risk may cause them to reject your application or charge a much higher interest rate.
Some of the most common reasons for a bad credit history include:
Of course, you don’t need negative marks on your credit history to be deemed high-risk. The first time you apply for a new credit account, your history will be clear. In such cases, lenders will be equally wary as you have yet to prove that you’re a reliable borrower.
The Credit Reporting System in Australia
If you have ever opened a credit account or applied for a loan, you will have a credit report. These reports are maintained by credit reporting agencies (Equifax, Illion, Experian) who gather your information and use it to build a credit score.
Your score is determined by many factors, including your credit-to-debt ratio (the amount of available credit vs accumulated debt), new accounts, and account age, but your payment history is one of the biggest factors.
When you miss a payment or commit another negative action, the lender will report it to the credit agencies and the information will be reflected in your score. From there, it can be seen by all lenders who use that service.
Credit score ranges vary from agency to agency, but they usually start at 0 and go to 1,000 or 1,200, with higher numbers indicating more reliable borrowers.
There are a few quick ways to fix some potential issues with your credit report.
The first step is to check for errors and inaccuracies. If you notice anything that shouldn’t be there, report it and get it removed. Mistakes happen, and they can have a big impact on your score.
Paying off some of your debt can also help, as it’ll reduce your credit-to-debt ratio, also known as credit utilisation. If you have any unpaid debts, clear those first. If they are old but still ongoing, contact the lender and discuss repayment plans.
The sooner you clear those debts, the better.
As for your payment history, the best thing you can do is keep making payments and then wait for the good activity to offset the bad. Negative marks have less and less impact with time and will eventually disappear.
For instance, Equifax notes that most repayment information remains for just 2 years, defaults/overdue accounts and court judgments remain for 5 years, and “serious credit infringements” remain for 7 years.
The exact timeframe for improving your credit report will depend on the length of your credit history, the extent of the “damage”, and how long the negative marks have been there. However, if you follow these steps for at least 6 months, you should notice some huge changes:
Download your credit report from all three credit reporting agencies:
Look for errors and report any that you find. You may need to dispute these, so remain patient and follow the necessary steps outlined by the reporting agency.
A bad credit loan can be a good way to consolidate or cover vital expenses, but you should refrain from taking out new credit cards and making too many credit applications. It won’t have as much of an impact as your payment history, but it’s still an important part of your score.
Keep Unused/Cleared Accounts
If you finish paying off a credit card, you might be tempted to cancel it. But that could hurt your score. The fact that you have a line of credit with no negative marks and no debt could be a big help to your credit score.
While it is important to clear debt where you can, you need to be careful. The last thing you want is to focus so much on clearing Debt A that you can’t afford a repayment for Debt B. Also, when clearing debts, focus on the highest interest accounts first.
Build a Positive Credit History
It is vital that you make your repayments every month. This should be your number 1 priority, as a misstep here could undo all your hard work.
If you miss a payment, it’s not the end of the world as it won’t be reported straight away. Just make it as quickly as you can. If a payment date is approaching and you can’t meet your obligation, speak to your lender, and see what your options are.
If there are a number of negative marks on your credit report, consider hiring the services of a credit repair agency. They can help to drag you out of the red while implementing helpful money and debt management habits. They usually charge a set-up fee followed by a monthly fee, but some charge a flat rate.
Either way, you can expect to pay around $600 to $1,200 for this service. It’s useful, it works, and it’s a great option to have, but if you’re in this position because funds are hard to come by, it might not be the best way out.
Your credit history is one of the key components of your credit score and something that every lender will consider when reviewing an application for new credit. To avoid negative marks, make your payments on time, clear your debts where possible, and remove/dispute mistakes and inaccuracies.
It can take months to see the benefits, but it’s worth the wait.
In the meantime, if you need a bad credit loan from a lender that won’t judge, a lender that gives everyone a second chance, contact Ume Loans today.
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Ume Loans is an Australian owned & operated company. We are a fully licensed lending company and are regulated by ASIC.
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