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How to fix your credit score for a car loan

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With a good credit score, you’ll have a better chance of getting your car loan application approved with the best interest rates. Lenders often use credit scores as a way to judge a borrower’s capabilities to pay back the loan. If your credit score is high, lenders believe you’re more likely to make timely repayments. A bad credit score, on the other hand, will make lenders doubt your ability to pay back the loan. 

Getting a car loan with bad credit rating in Australia is possible but it may put you at a disadvantage financially. If you have a not so stellar credit score, there are ways you can improve it. Below are useful tips on how to fix your credit score: 

Guide to fixing your credit score 

Fixing your credit requires a lot of effort. A quick fix won’t be enough to improve your credit long term. You need to take a long hard look at your financial situation and work towards healthier spending habits. Here are great ways you can rebuild your credit score: 

Check and correct your credit report 

Checking your credit report is the most important first step to help rebuild credit quickly. It’s relatively simple and you can see the results fast.  

Request your complete credit report from one of Australia's credit reporting agencies. Double check the entries to ensure there isn’t any incorrect information. See if they’ve got your personal details right and that no debt is listed inaccurately.  

If you’ve spotted errors in your credit report, contact your credit provider and request the listing to be corrected or removed. Once you’re in agreement with the credit provider, they’ll talk to the credit reporting agency so they can correct any errors found.  

Go to the Australian Financial Complaints Authority (AFCA) if you and your credit agency can’t come to an agreement. You may file a complaint to the AFCA or get an independent dispute resolution. 

Start paying bills on time 

A large part of your credit score is based on the timeliness of your credit card and loan payments. If you’ve had a slew of missed or late payments in the past, those will drag your credit score down. The good news is you can fix it by simply paying your future bills on time. 

Set alarms or reminders on your phone when it’s time to pay so you don’t miss deadlines. Or better yet, automate your payments so that your bill payments are never late. When you pay your bills on time, lenders may feel more confident approving your car loan application. 

Additionally, if you have outstanding debt, it’s best to pay them off sooner rather than later. Look at your finances to see if you’re able to pay off the debt or as much of it as you can to minimise your debt-to-income ratio. 

Avoid applying for too many loans or credit cards 

When you apply for a new loan, credit card, or any other lines of credit. The lender will conduct an inquiry into your credit history which can knock your credit score down by a few points. If you apply for multiple loans or credit cards in a short period of time, this could snowball and reduce your credit score significantly. 

Also, applying for multiple loans and credit cards in short succession may be seen by lenders as suspicious behaviour. Lenders may see it as you not being able to handle debt and make repayments. This will be considered by a lender when it comes time to review your car loan application. 

If you need to apply for new debt, it’s best to space the applications out within six months of each other. This will give your credit score plenty of time to bounce back from the inquiry. And it can also help you better plan for upcoming expenses and repayments. 

Limit your credit cards 

Having too many credit cards can make it difficult to manage your expenses. Cut down your credit cards to one or two so you can have an easier time keeping track of your bills. Also, only use your credit card on purchases you can confidently pay back. The goal is to properly manage your funds so that your credit score has a chance to improve. 

You don’t have to cancel all your credit cards. In fact, having a credit card may be a good thing because it shows lenders that you’re able to manage debt. All you need to do is stay on top of your credit card bills and not be overwhelmed when it comes time to pay. 

Increase your savings 

Building up good savings isn’t just good for your credit, it’s good for your finances in general. Although your savings won’t impact your credit score, it will give you some breathing room so you can still make your monthly payments in difficult times. It will help you avoid instances that could lead you to have bad credit in the first place. 

Lenders will also look at your savings for the same reason. They want reassurance that in case something happens to your financial situation, you could still make your repayments. There are really little to no downsides to having a significant amount of savings at your disposal. 

Ways to avoid getting bad credit 

Prevention is better than a cure—this is also true when it comes to credit. Once you’ve gotten your credit score in tiptop shape, follow these tips so it won’t get worse: 

  • Don’t take on too much debt. Always err on the side of caution when it comes to taking on more debt. If taking on new debt means you’re living paycheque to paycheque, it’s best to reconsider. 
  • Budget properly. Look at your finances and see where you’re spending most of your money. Know what areas to pull back on and ways you can build up your savings. Properly allocating your budget can help improve your overall financial situation. 
  • Diversify your lines of credit. Having diverse lines of credit may help you seem more trustworthy to lenders. It shows that you’re able to handle repayments. This also helps improve your credit score in the long run. 

When you’re ready, apply for a low rate car loan at loans.com.au!

Once you’ve improved your credit score, it’s time to look for a good car loan. At loans.com.au, we’ve got an array of car loans for you to choose from. Use our car loan comparison feature to find the ideal loan for you.

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About the article

As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.

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