Your credit score is one of the most important financial tools you and others have at your disposal to make the best financial decisions you can possibly make.
But, let’s say that your finances are uncertain after a life event beyond your control and you’ve lost whatever good credit you might otherwise have had.
Let’s say you’ve come through that relatively unscathed (minus the bad credit) and you want to get your credit score back on track in order to facilitate the purchase of a new house.
Well, there are a number of ways to do this, and here are some effective ways you can make your credit score go from zero to hero.
First Things First: What is a ‘Bad’ Credit Score?
Bad credit scores are usually determined to be numbers that are below 500, typically anywhere in the range of 300 to 500. This doesn’t necessarily mean that you’ll be disqualified from obtaining a mortgage.
However, it does mean you may qualify for what is known as a ‘bad-credit mortgage’, which means you can expect higher deposit fees, higher processing fees, and higher interest rates. Your bank may, of course, refuse your request for a loan altogether.
What’s average’ and ‘good’ when it comes to your credit score?
There are two types of numbers generally thrown out there for ‘good’ credit scores and ‘average’ credit scores. If you’re going to reach a goal, you need to have something concrete to aim for.
Average credit score: The average credit for most Australians tends to hover around 550, which means that if you approach a bank with such a credit score, you’re going to be approved for a mortgage.
A ‘good’ credit score is a number ranging from 600-700+. This means you will likely have to pay less in processing fees, deposits and have access to lower interest rates!
Banks love people like you because you’ve displayed the financial discipline necessary to give them a high degree of confidence that they’re going to get their money back.
How To Fix A Bad Credit Score?
There are many steps you can take to raise your credit score off the ground, starting with the following:
1. Pay Off Your Debts
It is imperative you pay off any existing debts. This will display to your creditor that you have the financial discipline to pay off any debt you incur. Take your time, but get it done.
2. Make Routine Payments On Time
In a similar vein to paying off your debts – make sure that you’re paying your utility bill, phone bill and other bills on-time in general. Over time, this will display good financial discipline and financial stability.
3. Keep Unused Credit Cards Open
Keeping credit accounts open is a great way to ensure you have access to credit, should you need it, even if you’re not drawing from it. But this will lower your credit utilization ratio and show that just because you have credit, doesn’t mean you’re going to use it.
4. Regularly Check Your Credit Report
Darren Robertson, a Realtor in Northern Virginia, explains, “One of the other things you can do is to regularly check your credit report yourself and dispute any inaccuracies you find in your report. This will show a willingness to engage with the process which will instill confidence from a lender.”
5. Setup a payment calendar
One of the most important things you can do for your financial organization and mental health, in fact, is to set up a payment calendar, so you can keep track of all your expenses and all of your fixed payments and when they’re to be made so you can make them automatically and not lose track of them, putting you in a greater risk of financial ruin.
Your financial health is determined by your credit score. It’s crucial you keep it at a healthy number and try to bounce it back over-time if you’ve undergone a financially damaging event that has damaged your credit health.
This will take time, as you have to essentially rebuild trust as a borrower between you and the financial institution from which you request a loan. But don’t stress – you can rebuild your credit score from the ruins, just start by following those five simple steps above.
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Author: Luke Fitzpatrick
