Repairing a bad credit rating

Paying owed money back on time has a positive impact on your credit rating. However, if you owe outstanding money on your credit card, it is entirely possible that it will have a negative effect on your credit history.

How can you end up with a bad credit rating?

Bad credit ratings can occur from one or more of the following circumstances:

  • Unpaid mortgages
  • Overdue personal loans
  • Unpaid utility bills

Having a bad credit file can work against you down the track and can turn out to be very costly indeed. For example, if you have unpaid bills or skipped payments, or have a history of maxed-out credit cards, the bank may deny you a home loan in the future.

That being said, you can straighten out your credit rating. We’ve compiled a list of necessary steps to help you streamline that process.

How you can repair your credit rating

  • Do a credit check. It never hurts to obtain a credit report first thing. That way you can establish where you stand financially before you move to the next step. You can get a free copy once a year from several credit reporting agencies upon providing your credentials. It usually takes 10 days to arrive, but you might have to pay if you want to receive your credit report faster.
  • Settle any disputed credit records. When you receive a credit report, you will find records on overdue payments of 60 or more days and ‘clear out’ listings, meaning the times you’ve been listed as a missing debtor by your credit provider. If you believe that an overdue account has been unfairly listed on your credit file, you should contact the issuer and get them to rectify the record. In the event of a negative outcome, you can refer the matter to the financial ombudsman service (FOS).
  • Pay off existing debt. You can start with minimum repayments – as long as they are on time. If you are unsure whether you can pay off your debt in full or improve your credit rating by yourself, seek financial counselling, which is a free service provided by Financial Counselling Australia.
  • Improve your credit. This can be done by putting all your spending such as grocery and petrol bills on one credit card and meeting repayment deadlines. If you have multiple credit cards, close them after you’ve paid them off one by one.
  • Get a personal loan. You can use a personal loan to consolidate your credit card debt matched to your credit rating. Alternatively, you can do a balance transfer onto a single credit card. Before you decide on a loan provider, you’ll need to determine whether you’re best off with a fixed or variable rate loan. It’s also beneficial to use one of the many online calculators to work out your repayments and how much you can borrow.