5 Steps to Salvaging Your Credit Rating

People that fall victim of a bad credit rating will find it difficult to take out almost any loan or credit for financial obligations. If you have a low or bad credit rating, you can almost kiss goodbye the realisation of your dream to become a homeowner – well, until it’s improved anyway.

Salvaging your credit rating before you apply for a mortgage or any financial loan is the best way to save money long term. Better yet, it gives you the strongest chance to reach your dreams. Refused loans are registered against your name and can add significantly to a bad or low credit rating but, it’s not impossible to reach your goals. We check out a few easy tips to save your credit rating – regardless of the state it’s already in!

1. Schedule Bill Payments as Priority

Paying your bills on time shouldn’t be an option; it’s an absolute must if you don’t want your personal credit rating to be damaged. The history of your payments is a major component of credit reports and is given the highest value when calculating your overall score. Late payments or even ones that are missed waves a red flag in the lender’s eyes.

Based on this information, lenders can easily assume a track record of late payments means you, the borrower, is unable to fulfil their obligations. Personal bills that aren’t paid as priority can also be subjected to additional late or missed payment fees which results in you going further backwards, instead of forwards.

Tip: Prioritise and schedule your bill payments through online banking. Through this, you can set up reoccurring bills but be sure to make the schedules payments for at least 5-7 business days before the bills are due. Electronic bill payment is a free, easy and reliable option.

2. Follow the “Cash for Wants, Loans for Needs” Rule

It’s easy to kill your credit rating quickly when you’re maxing out your credit cards for shopping splurges and unnecessary items.  People fall in love with the credit cards and are quick to pull it out for anything and everything – especially when you first get one. Whilst the convenience of credit cards is tempting, it’s a good habit to use them only for major purchases. It’s ideal to only be paying for months after, things you still need to use, for example; a car or home.

Tip: Save cash for entertainment, food, clothes and other small needs to ensure you won’t spend more than you have to.

3. Be Cautious about New Credit

Each time you apply for a loan or credit card, this activity is reflected on your credit report regardless if you get accepted or denied. If you have too many applications in a short space of time, this can impact on your credit history negatively. Some people think that by applying for a few different loans their chances of being accepted can increase, but it’s best to weigh up all the options and apply for one that fits best with your lifestyle and needs. Once you know the outcome for that, then you can decide whether to pursue other options or not.

Tip: Only apply for credit or a loan when it’s absolutely necessary – opening too many new accounts can also make it difficult to manage your overall credit.

4. Keep Track of Your Credit Cards

Whilst credit cards can be lifesaving when used properly, they can also be super dangerous if you don’t keep track of them. To ensure you don’t spend more than you can afford, write down of what you’re charging to your credit cards and how much is in your account.

Keep your eye on the overdraft fees – many banks will charge a fee to cover the cost of the purchase if you don’t have enough. Overdrafting means more money for you, so stay away from using your credit card when the account balance is low.

Tip: Stick to only one or two credit cards and if spending is getting out of control, leave them at home! 

5. Stay Financially Organised

Keeping track of your finances is one of the best ways to salvage your credit rating. Once your due payment dates have been documented, keep all your financial information in a file to refer to where possible. Seeing all your financial history in one place can make it easier for you to see where your credit and financial life still needs work. Some information you can keep in this file includes bills, tax receipts, banking information, financial goals, credit reports and scores and loan agreements.

Tip: Make a list of inexpensive and fun treats and keep this list in your financial file. Every time you reach a financial milestone (like paying off a credit card or debt), take out your list and reward yourself with something off it. Not only will this keep you motivated, but it will stop you making impulse purchases or feeling deprived when you’re trying to save.