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Credit where credit’s due

The way banks assess you and a loan application have changed in recent years. A credit score is now something they look at as an indicator of your ability to service a loan. By following a few simple tips and getting into good habits, you can improve your score and your chances of securing that loan.
A few years ago, as part of the push for more responsible lending practices, the government brought in new rules for the banks. It’s called comprehensive credit reporting, and it means all lenders need to share more detailed information about you.
Before this, banks kept the information about their customers to themselves and only shared the negative facts about your borrowing history. These were things like unsuccessful credit applications, loan defaults, late payment of loans and bills, and bankruptcy.
Now they also have to share the positive stuff.
If you regularly pay bills on time, always make your loan repayments, keep credit cards at a low level, and generally demonstrate responsible money management, you’ll be rewarded for your good behaviour. The better your behaviour, the better your credit score.

Why is a good credit score important?

The better you look in the eyes of a lender, the less of a risk you are, and the more likely it is you’ll get your loan application approved and you may also be able to access better interest rates and terms.
A credit score gives the lender a clearer picture of your financial situation, so they can work out how reliable you’ll be in making your repayments.
The most important thing to remember is that they look at your behaviour over a period of time. This means a couple of missed or late payments won’t impact your score, but regular late payments, or non-payment will.
And, if you don’t have a long history of borrowing (or any history), lenders can look at your regular payments of bills to see if you pay on time and determine your credit worthiness.

What do you do if you have a low credit score?

The key aspect of a credit score is that it’s calculated over a period of time. It’s a relatively accurate indicator of your past behaviour. The good news is that over time you can take steps to improve your money management and be rewarded with a higher credit score.

Here are a few tips to improving your score.

Never miss a bill payment.
One of the easiest ways a lender can tell if you’re reliable is to look at your history of paying bills. We all have a lot of recurring services to pay for, like phones, power, water, insurance, credit cards and internet. Each one is an opportunity to improve your score by paying it on time. But miss one and your score can go down. Make the most of setting up direct debits or putting reminders into your phone’s calendar, so you always stay on top of every bill.
Budget accurately.
The key to all good financial management is to budget well. Have a look at all your bills and work out exactly how much you spend every month on these. Then add other living expenses like food, petrol, subscription TV, take-away meals, and so on. Not only will this tell you how much you need to hold on to for all your bills, it can show you where you can cut costs, so finding the funds for your bills is easier.
Close unnecessary credit cards.
Part of a good credit profile is about not having too much debt, and that the debt you do have is being managed and serviced reliably. One obvious thing to do is to cancel any unnecessary credit cards. It’s less credit you have access to, and one more regular payment you no longer have to make. You don’t have to close all of your cards. Having a card with a low balance demonstrates your good financial habits and is an example of your credit history.
Pay off your outstanding debts.
As well as reducing your credit cards, taking care of personal loans is a great way to put yourself in a better financial position. Having less commitments means you’re in a better place to pay your ongoing living costs on time and improve your score.
Don’t make a lot of applications.
It’s a good idea to do your research into getting loans before you apply for them. Many people use online applications to test the waters and see if they get loan approval, but this can be a big mistake. If you get knocked back, it goes on your record. If you get knocked back lots of times in quick succession, even if you’re just shopping around, it looks bad to financial institutions.
Use a broker to apply.
The best way to avoid the pitfall of making a lot of unsuccessful applications is to use a mortgage broker like me. Not only can you make the most of my experience and expertise to help you research and get a good idea of where you stand in the eyes of lenders, I work closely with you to get the application right the first time by determining which lender will best suit your needs. This careful groundwork means fewer loan enquiries on your behalf, which is good news for your credit score.
So, if you’d like to find out more about your credit score, and make sure it’s as good as it can be before you apply for any new finance, please call me. I’m here to chat to you at a place and time that suits you.

Any advice contained in this article is of a general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regard to those matters. Information in this article is correct as of the date of publication and is subject to change.