A credit rating is what banks, finance companies, hire purchase lenders, rental agencies and power and phone companies use to see if you pay your bills on-time.
Bad credit used to just make it more difficult to get consumer finance. People with a poor credit score found it more difficult to get a mortgage, buy a car on hire purchase or to finance furniture or electronics.
A positive credit rating was largely based on a lack of defaults. If you avoided being taken to collection for unpaid bills you avoided a poor credit rating.
A poor credit rating could be repaired by avoiding further collections as prior bad debts were paid and dropped off your record after five years. Credit was easier to get and most providers would overlook a negative score for a higher deposit or higher interest rate.
With changes to the way in which credit ratings are gathered, there have been a number of changes that make it difficult for people to get ahead once their credit rating slips.
Positive credit reporting allows credit reporting companies to take how you pay loans, utility bills and credit cards into account when forming a credit score. Get behind with your bill payments and your credit rating can soon take a hit.
In the past, the only people who could access your credit score were companies that you were entering into a finance agreement with. Now you may be required to undergo a credit check to get a rental property, to sign up with a new electricity company, or phone provider or to get a new job.
A poor credit rating may not be your fault. Redundancy, sickness and other unforeseen circumstances can crash the rating of financially responsible people.
Poor credit can now have a severe impact on your quality of life. A poor credit rating can make it difficult to get that next job to dig yourself out of that hole. If you move you may find yourself renting in a less desirable part of a town and paying more for electricity with pre-pay providers.
The best way to improve your credit is to pay your accounts on time. Prioritise your loans, credit card, power and phone for payments, as well as any hire purchases. This will see your score start to climb back to where you want it to be.
