How to improve your credit score.

How to improve your credit score.

A good credit score is crucial for borrowing money because lenders rely on it to assess your reliability in repaying debts.  Unfortunately, many Australians are unaware of their credit score and how credit scores are calculated.

Having a low credit score can make it difficult to get things like credit cards, personal loans and mortgages approved. It can also mean that you’ll pay a higher rate of interest if you do have one approved. 

Here's a guide to help you understand and improve your credit score so you’ll have the best possible chance of having a credit or loan application approved.

How you can improve your credit score.

Improving your credit score requires consistent effort and good financial habits. It’s important to know what your credit score is and either improve it or maintain it so you can be the best borrower you can be. Here’s an overview of the things you can do:

1. Check your credit report and score regularly.

Get your credit report from one of the credit reporting agencies at least once a year. Credit reporting agencies are required to provide you with free access to your credit report every three months. For further information about accessing your credit report, refer to one or more of the following: 

• Experian
• Illion
• Equifax

You can also get your credit report and/or credit score from services such as:

• CreditSavvy
• Finder
• GetCreditScore
• WisrCredit

With these services you’ll generally have to accept their privacy policy which will include using your personal information to promote lending products to you. Be careful – more lending is probably the one thing you don’t want if you are trying to improve your credit score.

2. Review your credit report for errors.

Check your credit report for inaccuracies and report any errors to the credit reporting agency to have them corrected. Things to look for that you can have corrected for free include:

• Personal details such as your name, date of birth or address
• Debts that are listed more than once
• Incorrect debt balances
• Incorrect missed payment details
• Unpaid debts that you were not notified about
• Overdue debts listed that are in dispute
• Debts listed where a payment plan has been entered into or contract terms have been changed by agreement
• Debts that are listed that have been opened by mistake or as a result of identity theft

To have errors corrected, you’ll need to contact the credit reporting agency or the credit provider. If you can't reach an agreement with the credit reporting agency or the credit provider, you can contact the Australian Financial Complaints Authority (AFCA). 

Be careful about engaging a credit repair company to fix errors on your credit report. You may end up paying a lot for something you could do for free by contacting the credit reporting agency or your credit provider. If you are thinking of engaging a credit repair company, make sure they are licensed by ASIC. You can check this on the ASIC website by making sure the credit repair company is listed as a Credit Licensee or Credit Representative. If you need help you might be better to use a free financial counselling service. Good options for financial counselling include:

• National Debt Helpline – 1800 007 007
• Mob Strong Debt Helpline – 1800 808 488
• Small Business Debt Helpline – 1800 413 828
• Rural Financial Counselling Service – 1300 771 741

 

3. Pay your bills on time.

Set up reminders or automatic payments to ensure you never miss a due date. Late payments can significantly affect your credit score.

4. Reduce your debt.

Create a debt repayment plan by listing all your debts and developing a strategy to pay them off. There are several different strategies you can use including the avalanche strategy (paying off debt with the highest interest rates first) and the snowball strategy (paying off the smallest debts first) so pick the one that will produce the best results for you. Avoid taking on new debt while you are paying off existing debt if you can. Each new debt you apply for will result in a new “hard inquiry” which can temporarily reduce your credit score.

5. Use your existing credit and credit cards responsibly.

Make sure you pay off your credit cards in full each month if you can. This will help you avoid interest charges and demonstrate responsible use of credit. Keep a low credit utilisation ratio, which is the percentage of your credit limits that you are using.

6. Consider debt consolidation.

If you have multiple high-interest debts or a mix of high-interest and low-interest debts consider consolidating them into a single lower-interest loan to simplify your repayments and reduce the amount of interest you need to pay.

7. Keep your old credit accounts.

Provided you have the discipline to use them responsibly, it can help to keep old credit accounts open and to use them every now and then. The length of your credit history can affect your credit score, so keeping these accounts can help.

8. Keep a mix of different types of credit.

Having a variety of different types of credit (credit cards, personal loans and mortgages) in your credit history can help you improve your credit score. If you have a mix, it's useful to maintain it. If you don’t have a mix, it's not worth taking credit products just for this purpose. 

9. Get help if you need it.

You can get help with understanding and improving your credit history and credit score. Options include talking to us at Beyond Bank, speaking to a Credit Counsellor and speaking with a Financial Adviser.

We're here to help.

For more information on credit scores or securing the best loan for your needs, contact your local branch or call us. We’re here to help.