How to Improve Your Credit Rating: 7 Steps

Credit rating not looking great? Don’t panic. If you’re worried about getting rejected for loans, Canstar has 7 simple tips to improve your credit rating.

What helps to improve your credit rating?

It’s a good idea to understand and know how to improve your own credit rating, and put this knowledge into practice. Some of the ways you can help improve your credit rating include:

1. Paying bills on time

This may seem obvious, but it is the most important – pay all of your bills on or before the due date. A record of consistent and punctual payments will help considerably towards getting a good credit rating.

2. Not applying for any new credit

Every time you apply for a new credit account or credit card, your credit rating might slowly drop. So don’t open any new credit accounts.

3. Paying off any outstanding loans and debts

If you’ve got outstanding credit card payments, or outstanding debts of any kind, pay them off whenever you can. If they can be called outstanding, you’ve already left them too long.

4. Keep credit card balance low

A consistently low balance is much better for your credit score than a higher one. If you’re struggling with spending too much, then read our article How to Save Money & Stop Living Paycheck to Paycheck.

5. Check your debt-to-credit ratio

If you have $300 on a credit card balance, then that amount has a 15% debt-to-credit ratio on a $2000 credit card, as opposed to a 30% ratio on a $1,000 card. The lower your ratio, the better.

So if you’re the kind to consistently spend the same amount on your credit card, it’s worth looking into one with a higher limit. However, don’t do this if you think it would tempt you to spend more. Of course, be sure to pay off your credit card debt in full each month!

6. Hold onto safe accounts

The longer a credit account is maintained without any negative reports (such as a missed payment), the more it can improve your credit rating.

7. Diversify your credit

If you can demonstrate an ability to handle different types of credit at the same time, it could be an asset to your credit score. For example, a mortgage, a car loan, and a credit card would be an example of diversified credit, as long as you can meet the repayments on all three types of credit.

A mix of short-term and long-term, and fixed payment and revolving credit – all maintained responsibly – would see your credit score improve. That is not, however, a suggestion to take on more debt than you need.

Compare Credit Cards with Canstar

If you’re currently comparing credit cards, the comparison table below displays some of the low-rate credit cards currently available on Canstar’s database for Kiwis looking to spend around $2000 per month (some may have links to providers’ websites). The products are sorted by Star Rating (highest to lowest), followed by provider name (alphabetical). Use Canstar’s credit card comparison selector to view a wider range of credit cards. Canstar may earn a fee for referrals.

What will hurt my credit rating?

  • Having a bill that’s overdue by 60 days or more when the debt is at least $150.
  • Several applications for credit in a short period of time. Having a number of enquiries listed on your credit report isn’t an automatic negative, but credit providers may take a dim view of it.
  • Increasing or making no efforts to reduce any outstanding debts.
  • Credit card balance transfers can also affect your credit score: if you are rejected for a balance transfer, or if you aren’t able to meet the minimum repayments on the balance transfer, or if you apply for back-to-back balance transfers.
  • Refinancing your home loan – if you don’t do your research beforehand, and end up getting rejected for the loan.

However, it’ll always come down to your financial behaviours, and how responsible you are with your money. The smarter you are with your money, the better your credit report will become, or the faster your credit rating will recover.

It’s not a difficult task to improve your credit rating, even if it seems all hope is lost right now. It just requires attention, responsibility, and patience on your part. Use a bit of all three and you’ll hopefully see your credit score improve.

Compare Credit Cards with Canstar

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