The Money Web

Struggling to keep up with debts?

The credit score is expressed as a number, but it is more than that; it indicates your standing in the market for credit. It is the summary of your credit behaviour and patterns. When you improve your credit score, you are really improving your profile or credit rating.

Improving the credit score is doubly important to those who have bad credit. Aside from being a basis for loan approval, the credit score is often the determinant of the interest rate on the loan and the amount of credit limit. Bad credit loans often attract high interest rates, so people with bad credit need to work hard to improve their credit score to qualify for lower rates.

Your credit score is very useful in evaluating any application for credit, such as bank loans or credit cards. Upon receiving your credit application, the standard practice among credit providers is to pull your credit file and get an idea of your credit rating. Credit scoring is generally the most objective measure of your credit rating and helps to filter out subjectivity in the evaluation process.

Not overnight

You cannot improve your credit score overnight, not least because majority of creditors report to the credit rating agencies only once a month. Here are some immediate steps you can take to improve your credit score:

• Check your credit file. You need to make sure all the details in your credit file are correct. Request a copy of your credit file from the credit reference agency, inspect the entries and, if necessary, ask the agency to correct errors. Remember, you have recourse to the Office of the Federal Privacy Commissioner if you are not satisfied with the agency’s action.

• The agencies normally provide a free copy of your credit file though it may take a little - but reasonable - time. A modest fee will get you express service. One agency, Veda Advantage, goes a step further: for a monitoring service fee, they will notify when a third party requests your credit file.

• Pay bills on time. Your payment pattern seriously impacts your credit score, so make sure to avoid late payments particularly for mortgage, rent, credit cards and utilities.

• Make significant payments to lower credit card balances. Allowing your credit card balance to keep scraping the ceiling will have serious negative effects on your score, so pay down the accounts to increase your score. It is also better to distribute charges over several accounts than to max out one or two credit accounts. Avoid allowing your credit card balances to exceed 50 percent of your actual credit limit.

• Settle unpaid debt or set up a payment plan. If you attain the ability to pay off unpaid debt, do so; otherwise, you may want to arrange a plan of payment or settlement option with your creditor.

• Use existing credit with discretion. One good rule to follow is make a credit purchase only if you’re sure your cheque or savings account has enough funds to cover the expense at the time you incur it.

• Pay off newer accounts first. While you should plan on paying all your outstanding accounts, paying off the more recent accounts first will do more to raise your score. Paying off old accounts first (e.g. charge-offs) will have less impact because of their age.

If you encounter adverse circumstances that make paying bill in full difficult, contact the creditors to arrange for a smaller payment. It is the willingness that counts, so be proactive in communicating with them. Your credit rating is the result of patterns that built up over time, and nothing else but time and diligence will help you repair or improve your credit score.

Article by Richard Greenwood - Director of the Click 4 Group. The group runs a number of Austrlia’s leading finance comparison websites.