It’s no secret that we are a society that isn’t afraid of debt. Over the past three decades, Australian household debt has steadily climbed as more and more of us take out mortgages for homes and rely on products such as car loans and credit cards.
According to the latest OECD data, the ratio of household debt to income has more than doubled between 1995 and 2015, rising from 104 percent to 212 percent.
But what if you have problems paying off your debts? Whether it be due to unfortunate events or a lack of care, your credit rating could be affected.
What is a credit rating?
A credit rating or credit score is a number that represents how trustworthy your reputation is as a borrower. The higher your score, the more credit-worthy you are. You can find out your credit score through a number of national credit reporting bodies such as GetCreditScore.
A bad credit rating makes it harder for you to apply for a credit card or a loan. There’s no one-time fix for this issue.
Here’s what you can do to help restore your credit rating:
Pay your credit card and other bills on time
More than a third of your credit score is determined by your payment habits and history. Don’t fall behind and then try to cover your debt with one or two big payments. Respect the repayment plan and try to pay the minimum amount each month.
Spread your repayments
If you have several credit cards and loans, paying these off on time will add another 10 percent to your credit score. This shows that you can pay off several types of credit at the same time. So, if you have the means, don’t focus on only one loan or credit type.
Try to pay off any debt that has gone to collections
The latest credit rating rules ignore debt collections that have a zero balance. You may also be able to try to negotiate with the collector to upgrade your credit score after the debt is settled.
Get a personal loan to pay off credit card debt
Credit card debt comes with the highest interest, and it’s the most damaging to your credit score. To minimise the amount of interest you will end up paying, you could take a personal loan (at a much lower interest rate) to pay off your credit card debt.
Don’t go crazy opening new accounts
The average age of your accounts is very important for calculating your credit score. That’s why you need to stick to your old accounts when taking out new loans, because opening a new account for every loan you take may seem like you’re burdened with the old debts.
If it all goes pear-shaped…
If you have had to file for bankruptcy, there are still ways you can improve your credit rating and become eligible for future loans. This will be a tough process, but if you continue populating your report with good credit using a secured credit card, in time, you’ll be able to rebuild your score.
In the modern world, your credit report has become an essential part of your identity. That’s why you need to nurture it in the same way as you nurture your reputation among your colleagues and acquaintances. If you’re responsible with debt, you can manage and even repair your credit score.
About the guest author
Hi, my name is Dan. I’m from the greater Sydney area, born and raised in Liverpool. After high school, I went to the University of Sydney where I got my masters degree in banking and finances. I worked as a payments officer for nearly ten years in banking and international payments in the Australian banking sector. My hobbies include soccer, running and watching Netflix. https://bizzmarkblog.com/