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How to fix a low credit score

By Ershad Ullah December 15, 2022 | Tags: ,

If you are thinking about applying for a loan or credit you need to make sure your credit score is in order. A good credit score makes all the difference and can be a major factor in securing the loan you need at a great rate and on favorable terms. If you have a bad credit rating, this isn’t the end of the road and there are some key steps you can take to improve your credit rating. You should always be aware of your credit score (credit rating).

Your credit score stays with you and there is no reset button so it’s important not to ignore a low credit score. There are many situations in which a poor credit rating could be a problem in the future and you should know that a low score could mean:

  • You might not be approved for credit or loans
  • Why do I have a bad credit score to begin with?
  • It could be difficult to get approved for a mortgage
  • You may have to pay higher interest rates for loans
  • Loan applications to start a business could be denied
  • It may be hard to finance the purchase of a new car
  • Utility and telco providers may not accept your application to switch to them
  • Your applications to rent property, whether residential or for business, could be denied

What factors impact your credit score?

There are a wide range of factors that can contribute to a low score and you may not even be aware of the factors that could impact your credit score. Some of the most common factors involve the following:

  • Lack of financial management such as not paying bills on time or avoiding payment
  • Missing on loan repayments or defaulting on loans
  • Making too many applications for credit
  • Having your home foreclosed
  • Any court judgment on financial payments
  • Reporting errors by the credit Sometimes the agency has incorrect personal information, debt information entered multiple times or incorrect amounts of debt recorded, so it’s important to check all the details
  • Errors made by the credit provider. Sometimes your bank or credit provider can make mistakes too, like poor communication relating to unpaid debt, or accounts created through identity theft, so it is worth checking all the details.

Fixing your credit score

  1. Know your score

Order a credit report from more than one credit reporting body (as the score can vary slightly depending on what information they hold).

Check Your Credit Report. Credit score improvement begins with your credit report. If you haven’t already, request a free copy of your credit report and check it for errors. Your credit report contains the data used to calculate your credit rating and, while credit providers and credit reporting bodies must take steps to get things right – there’s still a chance that it may contain errors. Check to make sure that there are no late payments incorrectly listed for any of your accounts and that the credit limits for each of your open accounts is correct. If you find errors on any of your reports, dispute them with the credit reporting agencies or credit providers.

  1. Check for errors

Ensure that all your personal details are correct including your name and date of birth, to make sure that the credit report is correctly referring to you and your financial history. Make sure the credit reporting body has all the right information regarding your finances so that no debts are accidentally duplicated, plus double check the amounts for each debt listed. The consumer safeguards in the Privacy Act and Privacy (Credit Reporting) Code require credit providers and credit reporting bodies to promptly investigate and respond to consumers’ correction requests about inaccuracies in credit reports.

It is important to contact your bank or credit provider and ensure they correctly notified you of all unpaid debt, check that any listed debt is categorized as ‘in dispute’ rather than ‘outstanding’ and make sure all the debt is yours, and that you’ve not been a victim of identity theft or fraud.

  1. Fix errors and pay bills on time, every time

If you see errors in your credit report, you must take steps to rectify them. You should seek the services of a financial counsellor and this advice is free, independent and confidential. You should also speak to a broker about your credit report, and they may be able to assist you with errors on your credit report.

You should remember, however, that information, which is correct cannot be removed, so a credit provider or credit reporting body cannot be forced to remove that information to resolve a dispute with you. You should review your credit score at least once a year to check your credit health. These reports are free.

Seemingly little things like late payments and unpaid bills can make a difference when it comes to your credit report. Get on top of these as soon as possible and you can improve your credit score in the long run.

  1. Improve how you manage your finances

This may seem like a cliché, but only YOU can improve your credit score. Try to make sure your credit card repayments are on time, pay bills on time, and carefully manage your monthly budget. It’s also a good idea to hold off applying for any new credit or loans and lower the limit on any credit cards you currently hold, depending on your circumstances. The longer you pay your bills on time after being late, the more your score should increase. Older credit problems count for less, so poor credit performance won’t haunt you forever. The impact of past credit problems on your score fades as time passes and as recent good payment patterns show up on your credit report, credit providers will see that you are managing your credit well.

  1. Show lenders you’re good with loans

Having some debt and showing you can manage it responsibly is a great way to boost your credit score and show lenders that you’re a good bet. Having a ‘healthy’ amount of debt, especially a home loan, is helpful – but make sure you stay 100% on top of the repayments at all times.

How long does it take to fix your credit score?

It all depends on the reason for the low score. If it’s a reporting error on the part of the credit agency or your credit provider, then you will see a quick improvement. If you need to clean up your finances, then it will take longer.

It’s important to note that repairing bad credit takes time and there is no quick way to fix a credit score. In fact, out of all the ways to improve a credit score, quick-fix efforts are the most likely to backfire, so beware of any advice that claims to improve your credit score fast. The best advice for rebuilding credit is to manage it responsibly over time. If you haven’t done that, then you need to repair your credit history before you see credit score improvement.

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