4 Ways to Improve Your Credit Score
When it comes to handling money, particularly for us tradies, a solid credit score can open doors to better financial opportunities. Should you ever need a loan for expanding your trade business or even a personal home loan, a strong credit score will make the process a lot smoother.
Your credit score is a critical factor for most lenders assessing your mortgage application, as it reflects your financial health at a specific moment in time. It can be an indicator of how reliable and responsible you are when it comes to managing money. A higher score suggests that potential lenders will trust you to make payments on time and you are more likely to be granted access to loans, such as a home loan itself.
Let’s check out some simple steps that can help improve your score:
1. Stay on top of your payments
It’s easy to overlook a bill or two when you’re juggling everything that life throws at you, but try to avoid making it a habit. Missed payments can eat away at your credit score over time. You will not only avoid those annoying emails chasing your for money, but you will avoid any late fees that may be incurred by unpaid or delinquent payments. Once you are in a habit of on-time bill payments, it can start to reduce stress in your life.
To avoid this, set up a budget to track your due payments and stick to it. Nowadays, numerous banking apps can send you reminders for due bills, helping you manage your budget effectively. This habit will not only save you from late fees but also reduce stress and eventually improve your credit score.
2. Check your credit report
Make sure the information on your credit report is accurate as errors can negatively impact your score without you even realising it. If you’ve ever applied for credit or a loan, then your credit report exists, and it is your right to get a free copy of your report, every three months.
In Australia, you can get a free copy of your credit report every three months from these agencies:
Your credit report will include information about any accounts you have opened or closed recently and details on how frequently you pay your bills on time. It also shows which lenders or creditors have requested your credit score in the past year, which can indicate if you have been shopping for loans. Reviewing this information regularly helps ensure that it is correct and up-to-date, as errors can significantly lower your score.
3. Get rid of the debt, or as much as you can
Paying off your debts not only lightens your financial load but also boosts your credit score. If you’re thinking of applying for a loan, consider paying off some of your existing debt first. Lenders prefer borrowers with a history of regular repayments as it provides them with assurance about your reliability.
Any loans or other debts should be cleared as soon as possible to give you more room in your budget to save money, which can help with unexpected expenses and emergencies.
Having too much debt can cause lenders to worry that you might not be able to make payments on time if they loan you additional funds for a home loan, so consider repaying some of your existing debt before applying for a new mortgage.
4. Too much of a good thing can hurt
The importance of this step cannot be overstated: limit how often you apply for lines of credit. Every line of credit that you apply for creates a ‘hard inquiry’ on your credit report, which can have a negative impact on your overall score. Even if you are denied the line of credit, your score will still take a hit.
Every time you apply for a line of credit, it creates a ‘hard inquiry’ on your credit report, potentially lowering your score. If you apply for multiple lines in a short span, lenders might see you as a financial risk, negatively affecting your score. Tread carefully when applying for new credit.
Don’t hesitate to Seek Help
If you’re struggling, it’s okay to ask for help. Speak with a financial advisor to discuss strategies that may help you reduce your debt. Financial Counselling Australia offers free, independent advice.
Remember, these are just a few tips to help improve your credit score and prepare you for future loans. Be proactive, make some smart choices, and you’ll be on on the right track soon enough.
