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.
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.\
If you’re looking for a new credit card, then let Canstar be your guide. Perhaps you want one with a low interest rate, or one with a balance transfer offer to help you better manage your debt and fix your credit rating.
Our free credit card comparison tool compares all the major cards in the market and awards the best our prestigious Star Ratings. For example, the grid below shows a snapshot of the low-interest rate credit cards currently on Canstar NZ’s database, based on a spend of $3000 per month. For more information on credit cards and to compare further, just click on the big button under the table.
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