Bad credit can significantly impact your financial health, leading to higher interest rates on loans, difficulty securing credit, and even affecting your ability to get a mortgage. It happens when you miss repayments, default on loans, or make too many credit applications. Repairing bad credit is essential for gaining control of your finances and improving your financial position. Here are some actionable steps you can take to repair bad credit.

1. Check your credit score

The first step in repairing bad credit is understanding your current position. In Australia, you can request a copy of your credit report from major credit reporting agencies like Equifax, Experian and illion. Here's what to look out for:

• Request your credit report: You’re entitled to a free copy of your credit report once a year from each of the major credit reporting agencies. Visit their websites and follow the instructions to download your report.
• Review your credit report: Check for any inaccuracies or errors, looking for outdated information, incorrect listings of late payments, or fraudulent accounts.
• Dispute any errors: Contact the credit reporting agency to dispute any errors, providing documentation to support your claim, and request that the incorrect information be corrected or removed.

2. Practice good financial habits

Improving your credit score takes consistent and responsible financial behaviour. Here are some good financial habits to practice that can actually improve your credit score:

• Pay your bills on time: Set up reminders or automatic payments to make sure you never miss a due date. Paying your bills on time demonstrates your reliability to lenders.
• Don't miss repayments: Regularly paying off your debts prevents you from getting black marks on your credit report. If you struggle to make payments, contact your lender to discuss possible repayment arrangements to spread out the cost.
• Pay back your debt in full: Aim to pay off your credit card balances and loans in full each month to reduce your overall debt and improve your credit utilisation ratio.
• Avoid applying for too much credit at once: Multiple credit inquiries in a short space of time can harm your credit score. So only apply for credit when you absolutely need it.

3. Build up an emergency fund

Having an emergency fund can protect you from unexpected financial setbacks and having to rely on credit any time an urgent situation arises. Here are some tips to help you save money for an emergency fund:

• Set yourself a savings goal: Work towards saving at least three to six months of your living expenses.
• Automate your savings: Treat your savings like a regular bill that must be paid and set up automatic transfers to your savings account to ensure it happens each month.
• Cut unnecessary spending: Identify any non-essential spending that you can reduce or eliminate and instead redirect this to your emergency fund.
• Use windfalls wisely: Any bonuses, tax refunds, or other unexpected income should go into your emergency fund.

4. Reduce existing debt

Another important step in repairing bad credit and improving your financial situation is by paying down existing debt. Use a repayment strategy to help you stay on track:

• Debt snowball method: For quick wins and to help you stay motivated, pay off your smaller debts first.
• Debt avalanche method: Pay off the debts with the highest interest rates first to save on interest payments.
• Debt consolidation: Combine multiple debts into a single loan with a lower interest rate to make it easier to manage repayments.

Get professional financial advice

Work with a finance consultant to get personalised financial advice and strategies to improve your credit worthiness. Contact Mortgage Express today to connect with a finance consultant near you, and get help understanding your financial situation, creating a debt repayment plan, and advice for building better financial habits.

While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken by Finservice Pty Ltd (Mortgage Express) for any errors or omissions. This publication does not constitute personalised financial advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication. A Disclosure Statement is available on request and free of charge.

Finservice Pty Ltd (Mortgage Express) is authorised as a corporate credit representative (Corporate Credit Representative Number 397386) to engage in credit activities on behalf of BLSSA Pty Ltd (Australian Credit Licence number 391237) ACN 123 600 000 | Full member of MFAA | Member of Australian Financial Complaints Authority (AFCA) | Member of Choice Aggregation Services.