How to Bounce Back from a Bad Credit Score

Author: Bessie Hassan

If your credit score is a little worse for wear, you’re not alone. Over 2 million Aussies avoid their credit report in fear of what their credit score might be. Yet this number is one of the first things lenders will look at after you’ve lodged a loan application.

Credit scores range from 0-1,000 or 0-1,200, depending on the bureau you use to access it. A good score ranges between 622 and 725, while an excellent one sits between 833 and 1,200. If your number falls below 600, you might be prone to a few bad financial behaviours such as debt, multiple credit applications or defaulting on repayments.

However, the good news is that your credit score isn’t permanent. It can be improved over time, provided you make the necessary changes to the way you manage your money. While this won’t happen overnight, you’ll be taking strides to improve your score in the long run.

Below, we’ll take a look at how you can bounce back from a bad credit score.

Lower Your Credit Limit

If you already own a couple of credit cards but you’re not using the full credit limit available, it can be helpful to contact your bank and request to lower it. Maintaining a low credit balance is favourable from a lender’s perspective and looks good on your credit report. You can also limit the temptation to spend more money than you currently have.

Limit Your Credit Applications

Every time you apply for a credit card, it appears on your credit report. This means that if you have a handful of applications rejected at the same time, it can significantly lower your score. While it’s important to shop around for a card that suits your needs, you should try and limit your applications to one or two at a time.

Focus on Debt Consolidation

Not only is racking up debt stressful, it can also take a toll on your credit score. You should therefore aim to pay off outstanding debt as soon as possible. A balance transfer can be a good way of consolidating multiple debts into a single account. This reduces any interest payable, meaning you can pay off the outstanding funds at a lower rate and get ahead sooner.

Keep an Eye on Your Credit Report

Whenever an adjustment is made to your credit score, it’s noted on your credit report. You can access your report for free online and register for updates and alerts if anything changes on your file. If you notice that your score has gone down, take a look through your most recent listings and make sure they’re correct – you don’t want to be disadvantaged by a system error. If everything checks out, you’ll now have a good indication of where you’re falling short financially. From here, you can start to amend your spending habits.

Pay Your Bills on Time

Everyone misses a payment here and there. And while paying up a few days late isn’t going to lower your credit score, a default will. Late payments for loans or bills will become defaults if they exceed $150 and are over six weeks late. Defaults will hang around on your credit report for up to five years – and they don’t look good. If you’re running into debt from financing such as a personal loan, it’s a good idea to contact your lender and come up with a workable solution.

While you won’t be able to atone for years of poor money management overnight, a poor credit score won’t last forever. Getting on top of debt, lowering your credit limits and keeping on top of bills and payments will all help to improve your score over time. Cleaning up your financial act may be easier than you think.

Bessie Hassan is money expert at Finder.