Steps to Improve my Credit Score
How creditworthy are you? A credit score represents an individual’s creditworthiness. Lenders use credit scores to see if an individual can qualify for a loan, so it is important to know what affects a credit score. The steps you take (or fail to make) places a major bearing on your borrowing capacity. There are multiple ways you can improve your credit score to make yourself more appealing in the eyes of the lender.
1. Lower credit card debt
Not a surprising step. Many New Zealanders turn to credit cards when times get tough. Ask yourself if this is the best solution? In terms of your credit rating – if you fail to make repayments in time or even carry a high balance on your credit card(s) this has an adverse effect on your credit score. Aim to repay credit card amounts in full (or repay as much as possible) and limit the amount you carry on your credit card.
2. Pay bills on time – always
Again not a surprising step. But one that trips up many New Zealanders. Loan repayments, credit cards, utility bills and the like. Pay these promptly (before the due date) to avoid a black mark against your credit score. In fact, punctual payments (and in full) is a positive mark for your credit rating. Missed payments will remain on your credit report for two years.
3. Avoid defaults on payments
Tying in with the previous point your credit report indicates defaults. This is where a payment was overdue for over 30 days and the lender has taken steps to recover the outstanding amount. The bad news is, defaults remain on your credit report for up to five years. Again this can harm your future ability to access a loan or even a mortgage further down the track.
4. Stay active
You do not necessarily need to avoid credit at all costs to maintain a good credit score. Aim to utilise credit to make things happen but at the same time be cautious and have the confidence that you will be able to make the repayments on time.
5. Avoid too many credit enquiries
Too many credit enquiries in a short space of time suggests you’re in desperate need for cash. The equivalent of ‘shopping around for the best deal’ is not the route to take when it comes to applying for credit.
6. Changing your credit limit
Increasing your credit limit on your credit card (or likewise applying for a personal loan top-up) will typically result in a negative impact on your credit score. Conversely, lowering your credit limit will result in a positive impact on your credit score.
7. Closing a credit account or personal loan
It is important to note that credit limits alone are listed on your credit record – not the current debts on your account. Repaying a loan or closing a credit card may improve your credit score.
8. Can you use loans to build a credit report?
For many New Zealanders, particularly those who have never utilised credit before there is a level of risk associated. Getting a personal loan gives you the opportunity to create a steady credit history by making regular payments to the loan. Creating this consistent report will show your dependability and prove to creditors that you are not a risk to lend to. A commendable option, particularly if you do have multiple payments to manage and you are looking to simplify debt.
For more go to Can loans improve credit score?