One thing is clear - a bad credit score can damage your chances of obtaining a loan. But how are you to know what affects your credit rating and, more importantly, improve it?

While the credit checks and criteria vary from one lender to the next, there are a few common missteps they look out for.

If you haven’t checked your credit history, now is the time!

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There are four credit reporting agencies that keep credit reports in Australia: Veda Advantage, Dun & Bradstreet, Experian and the Tasmanian Collection Service. 

Anytime you apply for credit, the lender is able to draw upon your credit history to determine your credit rating.

If you want to find out your credit score then head to creditsimple.com.au, getcreditscore.com.au or creditsavvy.com.au, which issue credit information for free.

Each of these will come up with a slightly different rating so it’s worth checking both!

Using these services will not affect your credit rating, but it will give you a good idea of how attractive you are as a borrower.

Get your debts sorted out

If your credit rating isn’t as good as you were hoping, the very first step you should take is to pay down that credit card debt.

The average Australian has $4,300 owing on their credit card.

For many this is a huge amount of money and something a lender will look at closely.  

Even if you’re making payments, it’s never a good idea to be holding a large amount of debt in relation to available credit, as this will affect your rating so pay down that balance!

And make sure you pay your phone and utility bills as well as your loans on time, as lenders look at whether you consistently make the deadline for payments.

If you haven’t paid your overdue accounts within 60 days of the first notice of payment, the debts will be transferred to your credit record.

There they remain for a total of five years from the date they were listed on your file (In the case of bankruptcy, this will stay in your credit history for seven years.)

Contrary to popular belief, library, video and parking fines aren’t included on your credit report.

However, if you end up with a court writ or judgement through not paying one of these, it can be included on your credit report.

TIP: Even if you’ve paid off your credit card, don’t close the account.

Keeping the account open over a long period of time will enhance your credit score.

It’s also never a great idea to apply for various lines of credit at the same time.

This will cause alarm bells among lenders.

If you’ve been declined for credit by one credit provider and you continue to make a number of applications, the enquiries on your credit report will negatively affect your chances of obtaining credit.

Use different types of credit

If you always pay your bills on time — and if you want to be a successful investor you should be — then it can help to have a range of credit types.

Mortgages, car loans, credit cards and personal loans are all different types of credit and if you’re successfully paying off a number of these, it can actually work in your favour.

Why? 

It shows that you’re capable of managing multiple sources of debt. Or use someone else’s credit. 

Finally, you could also ask someone with a good payment history to add you as a credit card holder to their credit account.

This way, their payment history will be included on your credit report as well, which can only work in your favour.

The main thing to keep in mind is that if you find yourself with a bad credit rating, there are steps you can take to improve it.

You can’t undo the past, but if you at least know how institutions assess the credit history of applicants you can take steps to better your position.

And remember, nothing lasts forever

If you establish positive credit habits now, and stick to them for a number of years, they will eventually replace the black marks on your file.

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