10 ways to improve your credit score

Credit scores play a vital role in financial decisions, influencing your ability to secure loans and the interest rates you qualify for. Whether you're planning to buy a car or a home, or simply want to boost your financial profile, understanding how to improve your credit score is essential. Here are ten tips to improve your creditworthiness.

What is a credit score and how do you check it?

First, let’s understand credit scores. This number reflects your creditworthiness based on your credit history. The average Australian Equifax credit score is 846* out of a possible 1,200, which is a reasonably high score. A higher score indicates better credit health and an increased likelihood of being approved for credit. Lenders use this score to evaluate the risk associated with lending to you, making it an essential part of your financial life.

Before you can improve your credit score, it's crucial to find out where you stand. You can check your credit score through various comprehensive credit reporting agencies or online services. Regularly monitoring your score ensures that you are aware of any changes and can spot inaccuracies early on. Accuracy is key – even a small error in your credit report can negatively impact your score.

Our tips for a great credit score

1. Know where you stand: Begin by checking your credit score. This simple step gives you a clear picture of your financial standing. It also helps ensure that the information on your credit report is accurate. You can check your credit score for free by contacting one of the following credit reporting agencies.

Equifax: phone 138 332

illion: phone 132 333

Experian: phone 1300 783 684

2. Prioritise high-interest debts: If you have outstanding debts, you might choose to focus on paying down those with the highest interest rates first. This maysave you money in the long run and demonstrate responsible financial management.

3. Limit new credit applications: Opening new credit accounts too frequently can negatively impact your credit score. Lenders may perceive you as a higher risk if you have several recent credit inquiries.

4. Address past-due accounts: Catching up on past-due accounts is essential. Late payments can harm your credit score. You can contact your creditors to arrange a payment plan if necessary.

5. Reduce credit card balances: High credit card balances relative to your credit limits can lower your credit score. Try to keep your credit utilisation low by paying down balances and using your credit responsibly.

6. Diversify your credit mix: A mix of credit types, such as credit cards, loans, and mortgages, can positively impact your credit score. Tip: Only apply for types of credit that you genuinely need.

7. Avoid closing old accounts:  A longer credit history can have a positive impact on your score. Keeping old accounts open, even if they aren't frequently used, can help maintain a longer credit history.

8. Request a credit limit increase: A higher credit limit can lower your credit utilization ratio, which may positively impact your credit score. Customers may achieve this by inquiring with their credit card companies if it is appropriate to increase their credit limit. 

9. Set up payment reminders: Late payments are a common cause of lowered credit scores. Use payment reminders or auto-pay options to ensure you never miss a due date.

10. Monitor your credit regularly: Make it a habit to review your credit report periodically. This allows you to spot errors or fraudulent activity promptly and take necessary steps to address them.

Remember that improving your credit score is a gradual process and it requires responsible financial management. If you’re struggling with multiple debts, perhaps it’s time to consider a debt consolidation loan. Always seek professional advice before making major financial decisions and remember that individual results may vary.

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References
*2022 Equifax Australian Scorecard, https://www.equifax.com.au/sites/default/files/Credit-Scorecard.pdf, accessed at 17/07/2024