Four ways to start improving your credit score

Your credit score plays an important role in your overall financial well-being and success as it helps lenders to decide if they should lend money to you. Before we go any further, let’s take a quick look at what a credit score is and how it gets factored into your finances.  

A credit score is a number unique to you. It is calculated based on an analysis of your credit file including your credit history, enquiries, payments and other related information. It gives lenders a snapshot of how responsible you are with your money and your credit. For example, if you are thinking about taking out a personal loan or purchasing a home, lenders will evaluate your credit score to see if you’ve been responsible paying your other debts over time. If there are late payments, or other negative items on your file, these will make your score go down, resulting in either loan denials from lenders, or an approval with a higher interest rate. This can cost you more money now and across the life of any loans you may have.

Now that you know what a credit score is and how it can affect your finances, let’s look at 4 ways you can start improving your credit score:

1. Check your score! As a starting point you need to know where you stand - so the first step is to check your current score to see what it is and if it needs improvement. Once you know where you stand from a credit perspective, you can then get to work improving your credit file.  

2. Make sure all the information in your credit report is correct. If you find inaccurate information in your report, make sure you try to get it corrected. And if you have been late on payments, now is the time to start making a plan to get your accounts caught back up, so your report can start reflecting a positive payment history.

3. If you find that you can’t get caught up at this time due to a financial hardship, call your lender to see if you can negotiate a lower rate or arrange a payment plan to help get your finances back on track.

4. Finally, continue to check your report and your score throughout the year. Your credit score is dynamic, meaning it may change from month to month as your financial circumstances change, so checking your credit file should be a priority - especially if you’re trying to get out of debt or plan to make a big future purchase like buying a home.

Why it's important to check your credit score

Checking your credit score is important for several different reasons:

1. You can make sure the information contained within your report is accurate.

2. It gives you a snapshot of how lenders may view your credit worthiness in the event that you need to apply for a loan.

3. You can use your credit report as a tool to improve your financial situation and to better understand your finance options.

Remember, the best way to maintain a good credit score is to pay your bills on time and avoid borrowing more money than you have to. Each time you miss a payment on a bill your credit score could go down. Pay it on time and your score will improve. To find out more about your credit report and the potential finance options available to you, visit mycreditoptions.com.au - they offer a free credit rating service!

Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs.