Your credit score is one of the most important numbers in your financial life. This three-digit number, ranging from 0 to 1,000 or 1,200 depending on the credit bureau, plays a huge role in your ability to get approved for loans and new lines of credit at the best interest rates. A poor credit score can cost you tens of thousands in higher interest charges over your lifetime.
If your credit score is looking less than ideal, taking proactive steps to improve it can pay dividends down the road when you next apply for a mortgage, car loan, personal loan or credit card. Here are some effective ways Australians can give their credit scores a boost:
Check Your Credit Reports Regularly
The first step is to identify what’s actually dragging down your credit score by ordering your free annual credit reports from Equifax, Experian and illion (formerly Dun & Bradstreet). Dispute any errors or misleading information on your reports with the relevant credit bureau to potentially improve your score quickly.
Steps to Improve Your Credit Score as an Australian
Your credit score is a crucial number that impacts your ability to get approved for loans and new credit at the best interest rates. If your score is lower than you’d like, taking these proactive steps can help give it a boost:
Check Your Credit Reports Regularly
The first step is to identify what’s actually dragging down your credit score by ordering your free credit reports annually from Equifax, Experian and illion (formerly Dun & Bradstreet). Go through each report line-by-line and dispute any errors, outdated information, or entries you don’t recognize with the relevant credit bureau following their dispute processes. Just removing inaccurate negative listings can potentially improve your score.
Make Payments On Time, Every Time
Payment history is the biggest factor influencing your credit score, making up around 35% of the calculation model. Not missing any payments for bills like utilities, telco, buy now pay later services, credit cards and loans is crucial. Setting up automated direct debit payments from your bank account ensures on-time payments every billing cycle without fail.
Pay Down Credit Card Balances Consistently
The second highest weighing factor at around 30% is how much revolving credit you’re utilizing across credit cards and lines of credit relative to the total limits. Aim to pay down balances until you’re using 30% or less of the combined limits to avoid this metric dragging your scores down. As the balances reduce, your credit utilization ratio improves along with your score over time.
Limit Credit Applications and Hard Enquiries
Every time you apply for credit, whether approved or denied, the lender performs a “hard enquiry” credit check that gets recorded in your file. Too many of these hard checks in a short period can ding your credit score as it looks financially irresponsible. Try to space out major applications for mortgages, cards, personal loans by 6 months or so and avoid applying unless you actually need the credit.
Consider a Secured Credit Card
If you have trouble getting approved for standard credit cards, signing up for a secured card where you pay a refundable deposit (usually $100-$500) can help rebuild your credit score by adding positive, on-time payment history. As long as you make payments responsibly, this new tradeline should help your score over 6-12 months of use.
Become an Authorised User on Another Person’s Account
Those with a limited credit history could ask to be added as an authorised user to a family member’s older, responsibly-managed credit card. As an authorised user, you can potentially inherit some of the primary holder’s lengthy positive payment history into your own credit file, giving your score a boost from having deeper credit experience.
Fix Any Identity Theft Issues
If identity theft has led to fraudulent negative listings, late payments, or accounts you didn’t open appearing on your credit reports, you’ll need to follow the credit bureau’s formal dispute procedure. Submitting supporting documentation like police reports or affidavits can get this incorrect data corrected.
Use Credit Rating Building Products
Look into using personal finance products and apps designed specifically to help build credit history and scores, like tenancy rating services that report on-time rent payments or the CommBank Chip Up Saver account which gets reported to credit agencies. Building up a track record of responsible behaviour like this can positively influence your rating over 12-24 months.
The key things lenders are evaluating through your credit score are the ability to responsibly repay amounts owed on time and not over-extending yourself by tapping too much available credit. If you run into hardship due to job loss or illness, communicate with lenders about payment deferrals.
Otherwise, following good credit habits over 12-24 months should help improve a poor score into more respectable 700+ territory. A credit score above 700 shows lenders you’re a prime, creditworthy borrower deserving of the most competitive rates for loans and new credit going forward. A bit of diligence now can save you significantly on interest costs.
