If the mere mention of the words ‘credit rating’ have you quivering in your Jimmy Choos (that you can’t afford), we’ve got the facts on what you need to know and 7 handy ways to sky rocket your rating!
By Anna McDougall, The Money Maven
The Run Down:
OK, so before you buy anything you don’t have enough money upfront to pay for, you need to know what a credit rating is and how it affects you.
In short, your credit rating is a number and an indicator of your past history of paying back your creditors. Your credit rating is a silent killer and can worsen sometimes even without you even realizing! This is where the ‘just this once’ starts to add up!
Everyday people around Australia use credit for purchasing goods and services and this is what generally makes up the bulk of a person’s credit rating – and where you need to be careful!
If you’re just starting out, there are ways to establish credit as a beginner. Department stores, like Myer, are often times more willing to extend credit to those just starting out. Once you have that card for a while and are making your payments on time, you will usually have the opportunity to apply for a major credit card which will further help to build up your credit rating.
Your credit rating also let’s potential creditors get an idea of how likely you are to repay your debts – if you’re getting a squeamish feeling in your stomach right about now, read on.
7 Ways to Boost Your Credit Rating:
1. Pay On Time
Sounds obvious right? Your credit score will become damaged even if you are 30 days late and this information can remain on your score from anywhere between 5 and 7 years!
2. Pay Down Debts
This may come as a surprise but never pay off your revolving debt in it’s entirety! As your credit score is a reflection of your ability to manage your credit paying off your debt is not actually managing your debt. If you have a zero balance, how can you manage it? Pay off what’s necessary to make your credit profile look great, then manage the remaining credit.
3. Don’t Close Accounts
If you’ve payed off your debts, just don’t close the account! The longer an account is open with no negative reports, the better it reflects in your overall credit score.
4. No New Credit
Do not get sucked in to getting any new credit unless it is absolutely necessary. Each time you apply for credit, an inquiry is added to your report. This usually drops your credit score slightly.
5. Keep an Available Balance on your Credit Card
This will help you with improving your credit rating. The last thing you want is to have a bunch of cards that are maxed up to their limit with charges every month, which will damage your rating in the long term.
6. Have A Mix of Credit Types
Handling different types of credit = great credit score! In other words, get different installment loans i.e for your car, a personal loan or house.
7. Don’t File for Bankruptcy!
Even in extreme cases of desperation don’t file for bankruptcy or foreclosure! These stay on your credit report for 10 years and always decrease your credit score.
