My partner and I are working our way out of more than $18,000 in credit card debt. We didn't pay our bills and have had debt collectors knocking. We've settled one balance for $5,000, and we're slowly reducing the others. How can we remove poor scores from credit reports and improve our scores fast?
Sarah from St.Kilda
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The first thing to know is that you are not alone – it’s not uncommon for a financial planner to come across a client who’s found, one way or another, themselves struggling to keep up with the debt they’ve accumulated. To improve and maintain a good credit history, I would suggest seeking professional advice from an accredited Financial Planner to look at your situation as a whole. With regards to your credit score, it is likely that when debt compounds that there can be an underlying cause. Whilst it’s great to have a plan to correct your score, getting to the root of the problem will also really help you to ensure that you stay on track with cash flow in the future. Debt can occur from a number of influencing factors – such as your family situation, your ability to earn income, your overall cost of living and ability to budget and so on. A financial planner can help you to assess these influencing factors, and make recommendations to adjust your current methods to improve your financial future to avoid this happening again.
Now to address the immediate issue of credit scores. It is important to note that once you start missing payments for debts, this is recorded on your credit history for 5 years, even after you’ve repaid the debt. However, there are some steps that can be taken to try and improve your overall credit score. The below steps are generic in nature and suggested to be used as a consideration only in order to be appropriate to your personal situation they should be considered in conjunction with financial advice that is specific to your personal circumstances.
1. Appeal for hardship with your various lenders to try and get an extension on your various credit card due dates. You may be able to negotiate a more lenient repayment plan if you explain your current situation. By extending due dates, this gives you more time to make the repayments and doesn’t show up on your credit rating (as long as you adhere to the new deadline).
2. Bring the payments for the various credit cards up to date, rather than working on paying off a single card and ignoring the rest. Once the payments are up to date, the credit provider will update your credit file to show that the credit card is no longer overdue. Unfortunately this will not remove the history from your file, however it will be more favourable for you in the future.
3. Once they’re up to date, continue making all repayments on time - and then focus on eliminating the balance on one card at a time. The number of cards you have can damage your credit score, so instead work towards only having 1 credit card owing. Aim to only owe a maximum of 30% of the limit, to keep your credit utilisation ratio low (the amount of outstanding balances on all credit cards divided by the sum of each card's limit, and it's expressed as a percentage).
4. Once you’ve paid off your various cards, keep them active with a $0 balance. This will improve your credit utilisation ratio and show creditors that even though you have credit available, you don’t need to use it. This will also help in the future as you will develop a good credit record for those cards, and will look more favourable should you wish to acquire more debt (i.e. home loan or car loan).
5. Request a copy of your credit report and check it thoroughly. Whilst you may have made acquired bad credit history from your credit card debts, it’s important to check to ensure there are no other incriminating items on your history. Banking institutions have been known in the past to make errors and apply incorrect ratings to consumers – these can be disputed and removed from your history if they’re incorrect.
6. Australia’s credit rating system is held by independent credit bureaus, who can provide you with an individual credit report and score. I would suggest requesting a copy of your credit report and check it thoroughly. Whilst you may have made acquired bad credit history from your credit card debts, it’s important to check to ensure there are no other incriminating items on your history. Banking institutions have been known in the past to make errors and apply incorrect ratings to consumers – these can be disputed and removed from your history if they’re incorrect.
Getting some advice now from a Financial Planner may be the turning point for you and your partner to a brighter future. We are able to help you feel in control of your decisions and finances and be your financial sounding board by keeping you informed and educated. We are able to help you maintain accountability to ensure that you remain on track to achieving your desired outcomes and managing your debt. This can take the work from you so you can focus on enjoying that all that is important to you to maintain a work/life balance.
While the Adviser Ratings Website facilitates the question and answer functionality, all such communications are between users and authorised financial advisers, of which Adviser Ratings has no affiliation. Adviser Ratings is not the advice provider and does not provide financial product advice and only provides information that is general in nature.