If you’ve ever had a credit check, it’s likely you found something on it that took you by surprise.
- Finding out your credit score early can help you avoid future headaches
- You can build a credit score without a credit card
- Paying your mobile phone and utility bills on time can help contribute to a positive credit rating
Financial planner Jackson Millan told ABC Radio Sydney’s Focus program when people applied for significant loans to buy a home or car it often ended in tears.
“They’re often surprised to find out whether it be a VHS tape that they left on their file or maybe a utility bill that they forgot to pay or particularly a mobile phone bill that might have been set up for one of their children that they thought was being paid that ended up going unpaid and that has had a pretty adverse effect on their credit file,” he said.
He said finding out your credit score early was the key to addressing any potential issues.
How to find out your credit score
Mr Millan said government websites such as moneysmart.gov.au were great resources and he encouraged people to try to leverage free providers as much as possible.
He said it was possible to get a free credit score once a year.
“If you find that you do have marks on your credit file, you may wish to then pay for a more comprehensive credit report,” he said.
You don’t need a credit card to build up a credit rating
Mr Millan said young people, in particular, often thought they needed a credit card in order to build a credit rating – but it ended up being a slippery slope.
He said even if you have nothing owing on your credit card you could still be in trouble because banks looked at the credit limit when deciding whether to lend to you rather than the outstanding amount.
“Because the way the bank looks at it is that you could go out tomorrow and just say you have a $20,000 credit limit, you could max that out so they will look at your ability to service that entire maxed-out credit card and that could have a significant impact on how much debt that they’ll be willing to provide you,” Mr Millan said.
If you have a common name, that could also be a problem — as talkback caller Doug found out.
“We have a very common surname,” he said, explaining that his wife ran into some difficulty when trying to take out a loan despite having a “pure record”.
“There was another person with exactly the same name and exactly the same birthdate who lived in Queensland who had a terrible credit record and the two got scrambled and it took us six months of letter writing and ringing up to finally get it sorted out.”
Is it possible to get a mark on your credit rating expunged?
Jen’s son is applying for a home loan but has a $600 defaulted Telstra bill that has since been paid.
Mr Millan said this was a very common problem. He encouraged clients to engage a fee-for-service credit-repair agency.
“What a good credit repair consultant will do is they will actually look into the details of the law, they will investigate whether the telecommunications company has actually followed the law and if they haven’t, then on a technicality they can force them to remove it.”
He said if an error could not be found, you might need to get a loan with a second-tier lender who was happy to lend to people with defaults for a higher interest rate and then refinance when you’ve built up your credit file by paying your mortgage on time.
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How to improve your credit score in 2021: Easy and effective tips
If you’ve ever wondered “What is my credit score?” it’s probably time to find out. Having a good credit score can make life a lot more affordable. If you’re about to buy a house or car, for example, the higher your credit score is, the lower your interest rate (and therefore, monthly cost) will probably be.
Your number may also be the deciding factor for whether or not you can get a loan and ultimately determine if you are even able to buy something you want or need.
So, yes, the goal is to have the highest possible credit score you can, but increasing the number doesn’t just happen overnight. There are important steps to take if you want to increase your score, and the sooner you start working on it, the better.
“If you’re trying to increase (your credit score) substantially to accomplish a goal, you’re really going to have to have as much lead time as possible,” said Thomas Nitzsche, director of media and brand at Money Management International, a nonprofit financial counseling and education provider that advises people on how to legally and ethically improve their credit score on their own.
If you have fair credit and you’re trying to improve the number for a house purchase, for instance, you’ll want to start working on it at least a year in advance, he explained to TMRW.
But even though that sounds like a long time away, you can (and should!) start doing things right now to bump that number up. Below, see seven things you should do — and not do — to help improve your credit score:
1. Review your credit report
The first thing you’ll want to do is pull up a copy of your current report so you know where you stand. You can get free reports from all three agencies — TransUnion, Experian, and Equifax — at annualcreditreport.com. Nitzsche said it’s important to take a moment and understand the financial snapshot of where you are today and where you want to be.
You’ll also want to take some time and look for any errors on your report, which could negatively impact your score. “If your name is misspelled, that’s not going to hurt your score,” he explained. “But if you see a late payment or missed payment (that’s in error), or maybe you have an account that should be reporting but isn’t, then that’s a problem and that will impact your score.”
If there is an error, you should dispute it and try to provide as much proof as you can.
One other thing: You can also ask a creditor to remove an issue if it’s been corrected (i.e., if you paid off a collection debt). Nitzsche said it doesn’t hurt to ask and the worst thing they could say is no.
2. Have good financial habits
“The biggest part of your credit score is payment history, so the most critical thing is never missing a due date,” Nitzsche said. Set up a monthly autopay or add all due dates to your calendar so you never miss a bill.
You can also achieve a higher score when you mix different types of accounts on your credit report. It may seem counterintuitive to get extra points for having debt in the form of student loans, mortgages and auto loans, but as long as you’re paying them off responsibly, it shows that you’re reliable.
3. Aim to use 30% or less of your credit at any given time
Know your credit card limit, and try not to use any more than 30% of that number each month, otherwise your score could lose points for too much credit utilization.
Another thing you can do is ask your bank to increase your limit. “That will give you more flexibility to spend more,” Nitzsche said. You could also pay it off twice a month to keep the balance low. But he does warn that you never know when the balance is going to be reported to the bureau. It can happen at any point during the month, so it might be the day after you make the payment or the day before. “You don’t necessarily want to use the card and pay it the next day because that doesn’t give the bureau the chance to know that you’re using it,” he said.
4. Avoid requests for new credit
If you’re looking to increase your score around the time you want to buy a house or car, you won’t want to open up a new line of credit, like a retail card, credit card or loan. That’s because “hard” credit inquiries like those can lower your score, and sometimes it comes down to a few points over whether you’re approved or what your rate will be, Nitzsche said.
“Soft” credit inquiries, like when an employer checks your credit or when you pull your own report, won’t affect your score.
5. Keep all accounts open, even ones you don’t use anymore
Even if you don’t use that credit card from college, it’s a good idea to just keep it open because closing it could hurt your score. Nitzsche explained that you’ll be dinged some points for each account that is closed. If you want or need to mentally break up with a card, just cut it up instead.
6. Build your credit if needed
If you haven’t established credit yet, you might not even exist … in the credit report space, that is! “If someone has never fallen in delinquency on any subscriptions or utilities or never had collections on anything and they have not utilized credit cards or loans in the past seven to 10 years, they may not have a credit profile at all,” Nitzsche said. “That presents a challenge when you want to buy a home.”
If this sounds familiar, you may have to get a secured credit card where you put down a deposit, he advised. “You still have to make payments and use it responsibly. Not all banks offer them but you can usually check with your local bank or credit union.”
7. Reach out for help
There are many apps and credit-monitoring services that can help you stay on top of your credit score. You could also reach out to a professional credit counselor who can help you navigate your specific situation. (Here’s a good resource about finding a reputable service.)
One last thing: Nitzsche warned that everyone should beware of credit repair scams that claim to be able to increase credit scores for an advance fee to get accurate negative information removed (even temporarily) from credit reports.
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