What to do if you have a bad credit score
Here’s how to find out if you have a bad credit score and how to fix it
You’ve probably heard that having a bad credit score isn’t, well, good. Indeed, a bad score can have serious consequences for your future – particularly if you have aspirations of getting on the property ladder or starting your own business.
The good news is, there are ways to get back on track. But as well as fixing any problems, it’s important to know where you might be going wrong in the first place.
TODAY chatted to Patrick Canion from IPAC to get tips on the best way to understand, and manage, a bad credit score.
TODAY: First of all, what sort of information makes up your credit history?
CANION: There are a range of items that contribute to your credit history:
- Your personal details, such as age, where you live and work, your income and assets.
- The type of credit providers you have used (eg. a Bank or utility company).
- How much you have borrowed.
- How many credit applications you have made over time.
- Any late payments or unpaid debts.
- Any debt agreements or bankruptcy proceedings.
As you can imagine, the most important one for people with a regular income is the late payments — pay your bills on time and in full, and you should be ok.
TODAY: So, what is a bad credit score?
CANION: Most credit scores are based on a range of 0-1200. Anything between 0–509 is considered ‘Below Average’ which tells any lender that it is very highly likely that there will be an ‘adverse event’ (anything from a late payment to defaulting on a loan) in the next twelve months. However, you don’t have to be perfect to have an ‘excellent’ score. This level starts from a score of 833.
TODAY: If you have a bad credit score, what can you do to improve it?
CANION: There are a few things that people can do:
- Get a copy of your credit file and check for any incorrect entries. Mistakes do happen, so if you have evidence that there is an incorrect entry this can be fixed.
- Take control of your debt and your repayments. Make paying the full amount on-time , and if you can’t do this, talk to your bank and work out an alternative plan.
- If you can, reduce the credit limit on any existing credit cards. Reducing the amount you can borrow improves your score for the future.
- Avoid making multiple credit card applications — to lenders, this is a red flag that suggests you may be in financial distress.
- Be patient — bad marks usually stay on your record for two to five years. So, be patient and make today the first day you work towards getting a better credit rating.
TODAY: Where can people go to find their score?
CANION: There are four online sites that, if you give them your personal information, they will provide your current credit rating. A list can be found on moneysmart.gov.au along with other useful information.
TODAY: How long does a bad credit score last for?
CANION: As mentioned above, bed events can last for two, five or even seven years. However, your score is recalculated every month. And, just because you have a bad score, doesn’t mean you won’t get credit – although you may be charged a higher interest rate.
TODAY: Is there anything you can do to get rid of it immediately?
Unfortunately there is no ‘cold turkey’ solution available – but start today with managing good money habits and soon enough you will see an improvement.