1: Pay your bills on or before the due date.
Payments that are made late or that are in default will damage your credit file and credit score. Think of your credit file and credit score as your report card.
Each time you miss a repayment, on a car loan, credit card, mortgage, or any credit you may have, your credit score will go down and the missed payment will be recorded on your credit file. When you pay regular payments on time your credit score will improve.
An overdue payment will remain on your credit report for 2 years. A default will last on your file for 5 years. If you are forgetful or you struggle to keep payments up to date try setting up a calendar reminder, for when your payments are due. A direct debit is an even better way of ensuring the bills are paid on time.
2: Do Not apply for credit unless you need it.
The number of enquiries you make will impact your credit score and credit file. Each inquiry will reduce your credit score. The type of enquiry can have a negative impact. A pay day lender inquiry on your credit file could see a bank or finance company decline you even though you have a good credit score.
This is because a lender will think that you are unable to manage your finances properly if you need a high interest rate short term loan. Be aware that a “top up” of an existing credit card or loan will result in another inquiry on your credit file. Each enquiry lowers your credit score. This can happen even when you have been offered a credit increase or top up from your lender.
3: Do not apply for multiple loans.
Often people make the mistake of applying for multiple loans when looking for credit as part of their research process. This is totally the wrong way to look for credit.
Each time you apply for a loan or credit, this includes personal loans, car loans, credit cards, mortgages in fact any type of credit, you are reducing your credit score. Too many enquiries in a short period of time will reduce your credit score and you will be getting automatic declines because your credit score will be under the cut off for most lenders.
Only apply for credit when you need it. Use a finance broker who can do a “soft enquiry” on your credit file. What this mean is that the broker looks at your credit file and does not leave an enquiry on your file. This means that your credit score and credit file are not impacted by the enquiry. The finance broker can assess your details and submit an application to the lender most likely to approve your loan.
4: Know what you want before you apply
You should take your time to consider the loan you need or want. Contact a licenced finance broker and ask about the loan products that they have available to meet your needs and circumstances. You should check that the product being offered is right for you and your circumstances. Ensure that you can afford the repayments and that you will not place yourself in financial hardship.
5: Know what information is on your credit file.
Knowing what information is held on your credit file is important. The information should be checked to ensure that it is correct.
Listed below is some of the information held on your file.
- Your name and address.
- Your date of birth.
- Residential status.
- Length of time at your current address and previous address’s.
- Employment status & length of time in your job.
- The number of credit enquiries on your file.
- Where you have applied to for credit.
- Any Payday or short-term lender credit enquiries. These enquiries can be viewed as having a negative impact on any lending decisions.
- Adverse credit and default history.
- Any court judgements and summons.
- Any Bankruptcy you have entered into. A part 9 debt agreement is a form of bankruptcy.
- The age of your credit file.
- Your payment history. Your credit file shows 2 years repayment history on your accounts. This includes credit cards, car loans, mortgages, personal loans and any credit related repayment.
6: You should do a regular review of your credit file.
With the rise of identity theft, it is more important than ever to regularly check you credit file has not been impacted by unauthorised enquiries or applications. A regular review of your credit report can be effective prevention method.
If you have your credit report and see any unusual applications on your report or any incorrect information, it is best to contact Equifax and check. If you have applied for credit and you have been declined and you don’t know why, you can obtain a free credit report from Equifax within 90 days of making the application. It is a good idea to check why you have these things, even just for peace of mind.
7: What is comprehensive credit reporting?
Comprehensive Credit Reporting shows more data than ever before relating to your credit conduct or behaviour.
The new reporting includes:
Your credit account history and includes current accounts, when you applied for the credit, the date when the account became active, each payment you have paid for two years, if the payment was paid on time and the date the account was closed.
The maximum amount of credit available is listed as well as the current balance.
Your repayment history will include your loan repayment conduct for a period of 2 years.
This will include any late repayments.
8. Consolidate Multiple loans
This is called debt consolidation.
It is the process of combining multiple loans into one new loan. This can be a good time to cancel those extra credit cards that you may not need. This is likely to raise your credit score if you pay on time, as well you will be closing multiple accounts and the likely hood of forgetting to pay or missing a payment will be reduced.
9. How can my credit score change.
Your credit score can change for the better if you are stable in your residential address and employment. It’s smart to be aware of how the little things can affect your credit rating, like making multiple applications and increasing the credit enquiries on your file.
Your credit score could be negatively affected if you change residential addresses often, have had lots of short-term employers or if you apply for credit frequently. Court writs, defaults and judgements all have a negative impact on your credit score.
10. How do I know why my loan application was declined?
If you applied for a loan and it was declined, you are entitled to ask why. The credit provider, finance company or bank usually will not tell you anything other than you do not meet their lending criteria. We understand that this can be very frustrating.
You may have been declined for any or a combination of the following reasons:
Your application was missing information or evidence (documents) to prove your financial situation.
You did not have the ability to repay your new loan easily and the lender determined that you did not meet responsible lending requirements
Your credit score did not meet the requirements for the credit for which you applied
Your credit file contains defaults, writs and summons and did not meet the credit standards required by the lender.
Too many enquiries over a short time period.
Payday lender inquiries in the last 12 months
The information in this article is of a general nature.
It does not consider your personal circumstances, objectives, financial situation or needs.
You need to consider if this information is appropriate to your circumstances before acting on it. If you are unsure or do not understand, please seek independent advice from a finance professional or legal adviser.