Are you looking to build on your current wealth or assets? Increasing your credit rating can help you add to the wealth you already have. Whether you're aiming to buy another investment property or start a new business, there are multiple reasons why increasing your credit rating can assist you in your endeavours.
A credit report often reflects how responsible you are with your finances. A higher score can reduce interest rates, boost your likelihood of a loan, and broaden your scope for business and investment opportunities, which is a benefit if you're planning to expand on your current assets. A low credit rating in comparison can create roadblocks to growth, such as being denied credit when you need it. If you're building wealth, you want to avoid this.
This article will explore what a credit rating is, what it can mean for you, and how to increase it over time using proven strategies by financial advisors with hands-on experience. So, what financial habits do you need to change as a high-net-worth individual? A higher credit rating will contribute to more wealth in the long term.
A credit rating is an in-depth analysis of your credit and financial information, and typically in Australia, these scores range from 0 to 1000 or 1200. Banks, lenders, and credit card companies track this to determine your suitability and if there's any risk when agreeing to loan you money. Knowing a credit rating number can help navigate and reduce these risks due to accumulated debt.
What determines your credit score? Payment histories such as late fees, the amount of time you've held onto credit, the type of credit you have such as loans or mortgages, employment history, stable income streams, and your overall debt contribute to the final value. Boosting your credit score requires a solid foundation, but how can you increase your credit score, and how can you consistently provide good credit habits as a high-net-worth individual?
Making payments on time has many benefits to your credit accounts. However, if you want to buy a more expensive home or live life your way, a strong credit score holds many advantages. Let’s take a quick look at them now:
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If your credit rating is low due to multiple business investments, don't stress. There are many ways to hike up your score, and this doesn't only involve paying for things on time. Investing in a financial advisor who cares about where your wealth is going
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Paying bills on time is one of the main factors that affect a credit score rating. Late payments can stay on record for over seven years, so this needs to be a priority.
Always set reminders or automatic payments to prevent any overdue notices. Ideally, you want to be clearing all of your outstanding balances from all credit card accounts.
How quickly can this strategy work? This depends on the amount of payments missed, as well as how late a payment was. If your bills are 30, 60, or 90 days overdue, this can play a part in credit rating reduction. If concerned, always contact the creditor for an extension or request them to not report the missed payment. There are always options available to you.
Want to know what is working and what isn't? Understand the different types of information contained in your credit file. You can easily request a copy of your credit score from Australia's major credit bureaus, such as Equifax, TransUnion, and Experian Australia.
Additional credit accounts can increase your credit score, especially if it is a credit type that you don't have yet. A balanced mix of debt can boost your score in comparison to having debt in a single area, such as mortgage rates.
For example, if you already have a credit card, think about getting a car or mortgage loan, an extra bank credit card, or a retail credit card. Paying off multiple streams of debts can prove you're a reliable borrower. The types of credit you have will often contribute to 10% of your overall credit rating, so keep this in mind when taking credit risks.
Avoid applying for credit that you don't need. If you are considering business loans, home loans, personal loans, student loans, mortgage loans, or car loans, this is a hard credit enquiry and can harm your score if you take out more than you can afford.
On the other hand, soft credit inquiries don't affect your score and include a background check for employment, a background check for renting a unit or checking whether you prequalify for more credit.
Avoid using credit cards excessively or increasing the balance you have available. Charging large amounts monthly runs the risk of damaging your credit, even if it is paid off.
The amount of debt you have will determine 30% of your credit file. For example, if you have a $50,000 credit limit on your card, charging your card more than $5,000 in comparison can hinder your credit score.
If your credit goes up and yet your balance stays the same, this can increase your credit score. Asking for a higher credit limit can seem counterintuitive, but there are cases when you can use higher limits to your advantage.
Lenders consider you to be at risk when taking on extra debt, but if your spending is steady and disciplined without maximising your available credit, you can utilise your credit score.
For example, if your credit limit is $200,000 yet your monthly balance is $180,000, you are using 90% of available credit. In this case, you want to increase and leverage that limit.
The portion of your credit limit that is available is known as credit utilisation. A general rule is to use less than 30% of your credit limit, ideally a lot less as the card issuer reports it to credit bureaus. Your credit utilisation should be in the single digits for peace of mind.
No matter your personal or professional financial plans, always pay off your balances before your billing cycles or pay several times throughout the month to keep your balance as low as possible.
In some cases, a mistake on your credit report could affect your score. For this reason, it's critical to check for mistakes.
Take note of payments marked as late when they were paid on time, mixing credit activity with someone else by mistake, or negative information that shouldn't be there. Once these have been identified, always dispute these errors. Credit Bureaus have 30 days to respond to these disputes
A collections account is a threat to your credit score, so paying it off should be a priority. In many cases, you can persuade the agency to stop reporting this debt after it has been paid.
This account can be removed from credit reports if they are old or inaccurate. Thankfully, once collections debts have been paid off, they are often reported to your credit company as quickly as possible. If in doubt, always speak to a qualified financial professional for accurate guidance and up-to-date information.
Don't ignore your credit profile. Check your reports at least once a year for inaccuracies as they can sometimes contain mistakes. Identity fraud is still a common issue, so always keep track of your report status and the information it contains. It’s also wise to contact your financial institution if unknown payments are withdrawn.
Are you new to credit accounts and want to create a positive credit history? A secured credit card is one backed with a cash deposit, which is paid upfront and is equal to your credit limit.
This card is then used like a normal paying card, the on-time payments improving your depth of credit. It’s important to note though, that secure debit cards are only available in the United States and other countries. In Australia, all credit cards are unsecured. If you often invest overseas, this can be an excellent option for you to maintain your credit rating.
If you pay rent for your property on time, this can affect the state of your credit rating. Consistent rent records can hold an advantage as they prove you can pay something consistently.
Being an authorised user on someone else's credit account means that their payment history appears on your report. If this history is positive, it can raise your score. However, this can backfire if the holder doesn't pay bills on time, and you need to be certain they don't have a high credit utilisation ratio.
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Improving a damaged credit score takes time, and largely depends on your circumstances. For example, one late payment will prove easier to overcome than your going into debt for millions of dollars.
Later payments stay on your credit record for 7 years, whereas more severe cases such as bankruptcy can linger on for over 10 years. Your score won't change overnight, but there are methods you can take to enhance your score after all kinds of financial hardships.
At Dominium Capital, we understand the complexities of credit scores, and why they're so important to long-term growth. If you're hoping to grow your investment portfolio, increase financial security, and meet your expectations, our private wealth advisory holds the tools you get your score where you need it to be. You don’t need to stress about your financial future and what you’re leaving behind.
Diversifying portfolios with a client-centric approach, our independent financial adviser in Melbourne gives you access to global markets and offers investment advice, estate planning, retirement planning, or anything you feel you need to focus on for a more prosperous life.
Contact us today for solutions that meet your financial plans for freedom.
General Advice Warning: This article does not consider your personal circumstances and is general advice only – unless otherwise stated.
You should not act on any recommendation without considering your personal needs, circumstances and objectives. Dominium Capital recommends you obtain professional financial advice specific to your circumstances.
Any general financial advice is provided by Dominium Capital Financial Advisers Pty Ltd, a Corporate Authorised Representative of Dominium Capital Pty Limited ACN 142 188 510 125 AFSL 461653
