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Module 1: Overcoming bad credit

“Where you are a year from now is a reflection of the decisions you make today.” 

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Tippla is a tool that helps Australians to access and understand their credit scores. We are not financial advisors. We work with a range of industry professionals and compliance check our content to ensure factual accuracy. We do not provide professional financial advice. Consider seeking independent legal, financial, taxation or other advice to check how the information in this lesson relates to your unique circumstances.

Introduction 

Improving your credit isn’t an overnight fix – but it definitely can be done! The key ingredients to improving your rating are time and consistent positive behaviour. With that in mind, we have consolidated all of the important information you have learnt in the previous 4 lessons to help you overcome bad credit, or improve your credit score regardless of your rating.

Find your standing 

Before you can figure out which steps are needed to improve your financial planning and ultimately your credit scores, you need to know where you’re at. Think of it like this – how can you improve your situation if you don’t know what the situation is? When it comes to your credit score, some things to be aware of include whether your current credit score is good or bad and if all data entries are correct on your report. 1 in 5 credit reports have some kind of mistake on them, so it’s good to make sure you’re not the person with the mistake!

Take a few minutes to check your credit reports.

Your credit report allows you to see if you have any potential negative financial behaviours, such as applying for credit with multiple providers in quick succession or taking on more debt than you could handle. If you can’t remember what affects your credit scores, then head back to Lesson 1!

Kill Bill(s) and budget like a pro 

Most of us know how much they earn but not necessarily how much they actually need. Your monthly spendings consist of 3 different areas: Fixed expenses, variable costs, and savings. We went over this in Lesson 4, but just in case you can’t remember, here’s a breakdown of what these 3 areas include:

Fixed expenses

These are any expenses that you know up front and that are recurring costs such as living expenses, membership fees or mortgage payments. The budget for these financial obligations can’t vary as it is already set how much you will spend on them each month. 

  • Rent 
  • Utilities 
  • Insurances 
  • Credit Card/loan repayments* 
  • Memberships 
  • Phone 

*They can have variable interest rates, therefore, the repayments may vary over time. Check to see whether your credit card/loan repayments are fixed or variable.

Variable costs

For variable expenses, it is important to set a realistic budget. You may want to track your spendings over the course of a month to understand where your money actually goes. Some banks already give you the option to categorise and track your spendings. Alternatively, you could stay old school and use a spreadsheet to track how much you spend on what. 

  • Groceries
  • Restaurants 
  • Clothing/Shopping 
  • Entertainment 
  • Other 

One way to get on top of your finances is to set up a budget for different categories in your life. You should allocate a certain part of your budget to loans, bills and fixed expenses and not touch it. That way, your payment history and credit score are always protected! 

Revise your finance 

Once you’re aware of what your financial situation is, and you’ve set up a budget, you could then revise your current credit options.

If you have taken on loans in the past, it may be sensible to have a second look at them. Interest rates change all the time and what was a good deal a few years ago may not be your best bet anymore. 

Refinance 

Credit offers change all the time and sometimes, a better option may be available while you are still repaying your old debt. In some cases, refinancing a loan under better conditions should end up being smarter and cheaper for you. However, it is important to check if this is the best option for you before going ahead.

Debt consolidation 

If you have accumulated debt from multiple sources, you may be able to consolidate them into one loan. This may save you money as you only pay interest on one loan and it should make it easier to manage your repayments. Instead of remembering multiple dates, you only need to keep track of one. Again, be sure to check if this is the best option for you, as you might end up being charged fees if you try and move around your credit. 

Has your credit score recently changed? Why? 

If you have applied for credit recently, chances are that your credit score has lost a few points. Each application causes a hard enquiry on your credit report that will leave a mark. 

Whenever your numbers change it is sensible to check what’s the cause. These changes help you learn a lot for the future. 

Future planning 

Whilst it’s good to live in the present, it is also important that you are thinking about the future, whatever it may entail! So what are some things that you could do to look out for future you? Here are a few things:

Include savings into your budget. 

If you haven’t already, it’s could be a good idea for you to start saving. You could start with your emergency fund first. Having a financial buffer in case you need to pay for an unexpectedly big bill like your car breaking down, means you won’t have to stress about how you’re going to cover the costs. An emergency fund also means you might be able to weather tougher financial times better, like losing your job.

A solid savings account could also give you more leverage to prioritise repayments and bills to protect your credit scores. 

Make extra payments towards your debt. 

Think about credit as an opportunity to increase your cash flow whenever you need to. The more credit you take, the less is currently available to you. (And the longer you repay, the more you pay in interest.) If you try and pay off each debt as quickly as you can, you could save money long term and have more credit available to use in the future. However, it’s important to look out for any hidden fees – sometimes you can actually be charged for paying off your loan earlier. This varies amongst credit providers.

Think about your retirement early. 

Retirement feels so far away. However, you could make a huge difference by addressing it today. Most Australian employers contribute 9.5% to your Super, however, it is possible to increase that by a small amount of 4.5% of your pay before tax. This could make your Super grow much faster and potentially improve your retirement savings dramatically. 

Be mindful with your applications for credit. 

Each credit application could pull a hard enquiry that will affect your credit score. Therefore, you want to do your homework first: which creditor is most likely to give me the best rates? What are my chances to get accepted with my current credit score? You should avoid applying for multiple options if possible. It is better to choose one good one and stick to it. 

Tippla is a tool that helps Australians to access and understand their credit scores. We are not financial advisors. We work with a range of industry professionals and compliance check our content to ensure factual accuracy. We do not provide professional financial advice. Consider seeking independent legal, financial, taxation or other advice to check how the information in this lesson relates to your unique circumstances.

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