May 22, 2019 | 06:01 AM

Get Out of Debt

21.08.2018Get that credit rating up: Improving access to loans

Accessing credit relies on more than a lender simply assessing income and outgoings in order to see whether the borrower can keep up with repayments ? having a decent credit rating is also essential.

Some people believe that getting a major loan such as a mortgage is a relatively simple task. But accessing credit relies on more than a lender simply assessing income and outgoings in order to see whether the borrower can keep up with repayments – having a decent credit rating is also essential.

These automatically calculated figures are the bane of many potential borrowers’ lives, and they can sometimes appear to stand in the way of securing an important loan required to move on to the next life stage. Luckily, there are ways around the problem and even the worst of credit scores can be salvaged to some extent.

What is a credit score?

At its core, a credit score is simply a mathematical equation which reflects how diligent a person has been at repaying loans over a certain period of time. Many different items of historic credit can be integrated into a credit rating, and they can contain everything from mortgage repayments to mobile phone bill payments. When a consumer takes out credit with one provider, data on their performance can be shared with other providers too – which is how the information used to determine the score is compiled.

Credit scores are usually shown as a number – the higher the number, the better the score. In theory, higher scores also increase the likelihood of being approved for a loan. A credit score isn’t the be all and end all, though, and having a bad score doesn’t mean that a person won’t get a loan. In fact, having a high score doesn’t even guarantee that a potential borrower will get their desired loan. However, it is a commonly used tool in the arsenal of lenders and a low score could put a consumer at a disadvantage.

How can it be improved?

For a consumer who has had trouble paying back bills before, their history is the bad news. The good news is that there are ways to fix the problem – and they’re not quite as difficult as they may seem. First of all, preventing problems from arising is always better than carrying out damage control later. By only taking out debt that can be paid off easily and never missing a payment or defaulting, a consumer will give their credit rating the best chance of success.

In Australia, if a consumer misses a payment by a value of over $150 then this will follow them and their credit rating around for several years – so it’s simply not worth risking. It’s also important to cut down on the number of times a borrower approaches a new lender. It’s noted down each time a consumer asks a new provider for a loan, and their rating suffers each time – which means borrowers shouldn’t try to pay off one form of debt with another.

New borrowers

It’s worth pointing out that a bad credit score is not necessarily the result of struggling to repay loans in the past. It can also come from never having any credit at all. If a consumer has not borrowed in the past, lenders won’t have anything to go on when it comes to working out their score. This lack of information will lead to a poor credit score. Because of this, it may be worth opening up a credit card and ensuring it is paid off every month to ensure lenders have some positive history.

Many Australians find themselves looking for ways to boost their credit ratings in order to improve their ability to access loans, and there are plenty of ways to do it. From opening up a small credit account to enforcing some self-discipline to make sure payment obligations are met, achieving a better credit score is an attainable goal for those who are willing to try.

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