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6 tips to help improve your credit position

·3-min read
houses from above and man on computer
Here are some tips to help you keep your credit position strong. (Source: Getty)

Rising interest rates are hitting Aussie mortgage holders hard, with first home buyers hurting the most.

Equifax data showed mortgage holders were increasingly falling behind on their mortgage repayments, with first home buyers more than twice as likely as other mortgage holders to be in arrears (90 days past their due date).

Equifax general manager, consumer, James Forbes said many first home buyers were falling behind because they had recently entered the low-rate, high-price pandemic housing market and hadn’t had enough time to make significant down payments on their mortgage to build equity.

However, Forbes also said established mortgage holders were increasingly dipping into their post-pandemic household savings to manage the rising interest rates.

Another rate rise is expected at the Reserve Bank of Australia’s meeting this afternoon, which will put additional pressure on variable-rate mortgage holders if their banks decide to pass the hike on.

A fourth interest rate increase of 50 basis points would add around $5,784 to the annual cost of a $500,000 home loan, Mozo analysis showed.

Falling behind on your debt repayments hurts your credit score, which you need for loans in the future.

Forbes provided a couple of tips for people hoping to improve their credit position in the current interest rate environment.

  1. Make regular repayments - Consider setting up direct debits and schedule loan repayments on or shortly after your pay day.

  2. Review open credit accounts and existing loan commitments - Try to limit the number of short-term unsecured loans you have, including buy now, pay later services or personal loans, because too many may be an indicator of financial stress. It's OK to have a credit card if you’re paying back debt on time, but if you have too many, this can also be an indicator of financial stress. Cancelling or closing any credit card accounts that are not of use anymore can help improve your score’s health, rather than hurt it.

  3. Regularly check credit reports - Be proactive and check your credit report periodically. You can obtain a free credit report every three months.

  4. Explore repayment plans or new payment arrangements - If you are having trouble meeting large monthly payments, it might be more helpful to discuss a weekly or fortnightly loan-repayment plan with your lender. In some cases, different repayment terms may be beneficial. This could include flexible payment arrangements or being allowed more time to pay. Ensuring you adhere to the terms and conditions of any new arrangements you have in place for your existing loans - where you have had to seek temporary relief/deferral or varied payment arrangements - will be important in maintaining your credit profile health.

  5. Regularly communicate with your bank and/or lender - Making creditors aware of your situation, especially early on, can ensure a small problem doesn’t become a bigger one.Many providers have hardship programs that you may be able to access.

  6. Notify lenders when your details change - If you don't advise, for instance, your phone company and utility providers of your new contact details, they won't be able to redirect bills to your new postal or email address. If you then don't pay these bills, a credit infringement or overdue debt could be listed on your credit report.

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