IF you are looking to take out a home loan in the short to medium term, it is important to have a good credit history.
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If you have a history that is littered with late payments or defaults, your potential lender may choose not to lend you money.
If you do have a fairly unsatisfactory credit history, don't despair.
There are a few easy things you can do to improve your credit score.
1. Pay off your bills
If you want to look like a good potential borrower, it is important to have little to no unpaid credit card debt.
The reality is credit card debt can ruin your credit rating. Carrying a high percentage of debt in relation to available credit drags down your credit rating, so it is important to focus on paying down these balances.
Consider living on a tight household budget while you are paying down your debts.
Revolving credit like credit cards should be paid off as quickly as possible.
You'll even save money with this method by avoiding the high interest rates associated with revolving credit.
2. Break old habits
While we have all done things in our past that we are less than proud of, you don't have to let your past control your future.
If you have a history of late payments, change that pattern today.
Break your old payment habits and make sure everything is paid on time.
Your payment history accounts for 35 per cent of your credit rating, so it is essential to keep your payment history positive.
3. Don't close accounts for the sake of it
You may think that it's beneficial to close old accounts that you no longer use, but closing these accounts can actually decrease your credit rating.
A portion of your rating depends on the length of your credit history.
A long credit history is considered to be beneficial, so you want to keep old accounts open to make your overall credit history as lengthy as possible.
4. Be careful about taking on new debt
Applying for a credit card or loan is an activity that is reflected on your credit report.
Too many applications in a short period of time can have a negative impact on credit history.
5. Mix it up
Finally, it is always a good idea to maintain a good mix of credit.
The reality is lenders want to see a mix of credit types to ensure that you can handle different types of credit.
Mortgages, auto loans, credit cards and personal loans are all different types of credit.
■ Richard Windeyer is a mortgage broker with Mortgage Choice. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Phone: Richard Windeyer on 1800 01 LOAN.