Best way to fix your credit rating

So you think you have a good credit record? Have you ever struggled to gain approval for a store credit card, small loan or some other borrowing? Chances are that you may have unwittingly accrued a poor credit rating over time.

You don’t even need to have a mountain of unpaid debt to acquire a bad credit record. Sometimes, even consumers who pay back every cent they borrow on time can build up a record that lenders consider a credit risk.

For instance, if you have just one credit card that you max out with all your spending, it sends a signal that you cannot hold on to your money. One of the ways lenders measure your credit card spending is by applying the utilisation ratio.

‘Utilising’ or regularly spending up to your maximum credit gives the perception that you are far from thrifty. Your utilisation ratio is not affected by the fact that you pay the balance on time and start with a clean slate each month.

Some experts suggest that, in order to avoid a high utilisation ratio, it is wise to have more than one credit card, and to only use a portion of the available credit limit on each. Alternatively, you could apply to have your limit increased, as long as you are not tempted to spend more. Having a large part of your credit limit untouched each month suggests that you can handle your money sensibly.

A bad credit rating may also arise if a mistake has been made by an organisation you did business with, or by a scammer who has stolen your identity and is borrowing in your name.

It is important to check your credit rating at least once a year to ensure it accurately reflects your money handling habits.

You can do this yourself and it is free of charge. But beware of asking ‘Professor’ Google how you can restore your lacklustre credit rating. At least four or five advertised websites will show up in your search if you do, and some of them might be scammers.

The government financial advice site, MoneySmart, has good reason to believe there are groups posing as credit repair outfits that are not legitimate. You should avoid giving them personal details that may possibly be used to steal your identity.

Be wary of ‘credit repair’, ‘credit fix’ or ‘debt solution’ companies that claim they can improve your credit report, MoneySmart warns. The site also cautions that, in most cases, default listings and other historical information cannot be removed from your credit report unless they are proven to be wrong.

MoneySmart also urges readers to walk away if they know the information on their credit report is correct yet the company tells them that they can remove or change that information.

If, after checking your credit report, you still believe it contains incorrect details – such as a loan you never signed up for – follow MoneySmart’s guide to fixing wrong listings:

  • Contact the creditor and ask for the incorrect information to be removed from your report
  • If the creditor does not cooperate, contact the relevant Ombudsman service for help
  • You may be able to put a ban on your account free of charge to ensure only credit providers can access your account.

Have you ever been knocked back by a lender? Do you know what is listed on your credit rating? Has a scammer ever stolen your identity?

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Written by Olga Galacho

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