Nine practical steps to improve your credit score
Improving your credit score is one of the most impactful financial moves you can make. A higher credit score may open doors to better interest rates and more favourable loan terms and even improve your chances of securing rental housing. In Australia, a comprehensive credit reporting system has been in place since 2018 and maintaining a good credit score has never been more critical. Whether you're looking to buy a home, apply for a loan, or keep your financial options open, here are nine practical steps to boost your credit score.
1. Understand your credit report
Understanding what's in your credit report is the first step in improving your credit score. This report contains a detailed record of your borrowing history, such as loans, credit cards, and any other credit you've used. You can get a free copy of your credit report from major credit reporting agencies like Equifax, Experian, or Illion.
2. Pay your bills on time
Paying your bills on time is crucial for maintaining a good credit score. Late payments, especially those exceeding 14 days, can significantly impact your creditworthiness. It's good practice to set up automatic payments or reminders to ensure you never miss a due date.
3. Reduce your credit card balances
Your credit utilisation ratio is the amount of credit you use compared to your available limit. A lower ratio is better for your credit score. If you're carrying high balances on your credit cards, make a plan to get them down. Generally, you should keep your credit utilisation below 30% of your available credit. So, for example, if your combined credit limit is $10,000, try to keep your balance below $3,000.
4. Limit applications for new credit
Remember, when you apply for credit, such as a loan, a credit card, or a financing offer from a retailer, an enquiry may be added to your credit report. This enquiry will stay on your credit file for five years, so having too many enquiries in a short period can hurt your credit score. Be smart about when and where you apply for credit.
5. Keep old credit accounts open
The length of your credit history also plays a role in determining your credit score. Older accounts show you have a longer track record of responsibly managing credit. When deciding which accounts to pay out and close first, always compare your interest rates. Keeping your older accounts open may help extend your average account age.
6. Diversify your credit mix
Lenders like to see you can manage different types of credit responsibly. A mix of credit accounts, such as a mortgage, a car loan, and a credit card, may positively impact your credit score. However, this doesn't mean you should take out new loans to improve your credit mix diversification. Instead, focus on responsibly managing the credit you currently have.
7. Fix any credit report errors
Errors on your credit report can unfairly lower your credit score. Common mistakes include incorrect personal information, duplicated debt listings, or accounts that don't belong to you. If you find any errors, contact the credit reporting body and the creditor involved to correct any inaccuracies. In most cases, the creditor will request evidence of the error you are disputing, so be prepared to provide this. This process can take some time, but correcting these errors can boost your credit score in the long term.
8. Consolidate Your Debts
Debt consolidation may be a good option if you struggle with multiple credit card balances or loans. Combining your debts into a single loan with just one regular payment can make managing these easier and will likely reduce the overall costs over time. However, make sure the consolidation loan terms suit your circumstances and avoid taking on any new debt until you've paid the consolidation loan in full.
9. Stay informed and be proactive
Your credit score is not static; it changes based on your financial behaviours. Make it a habit to check your credit report and monitor your score regularly. Many credit reporting agencies now offer free credit score tracking. Staying informed allows you to identify potential issues early and take steps to resolve them before they become significant problems.
Final thoughts
Improving your credit score is a journey that requires time, patience, and responsible financial habits. By understanding your credit report, paying bills on time, reducing debt, and making strategic decisions about credit, you can steadily improve your credit score and unlock better financial opportunities.
No matter how diligent and financially savvy you become, unexpected expenses may still arise. If you need extra funds and are working with a good credit score, we're here to help. Our cash loans from $500 up to $5,000 are quick and easy. Once your loan is approved, the cash is usually in your bank account within a few hours - so you can cover those unexpected expenses, pay off existing debts, or consolidate them into one manageable loan.