Your credit score is a super important tool. It plays a big role in how banks view you as a borrower, and it can be the key to securing a loan - at a good rate.
And, while we know bad financial habits like late bill-paying, making too many credit enquiries and filing for bankruptcy can negatively affect your credit score, it can be tricky to know how to improve your score once you’re there.
If you feel like you have a credit score-shaped mountain to climb, it’s not as tough as you think.
Check your credit score
The first step in improving your credit score is actually finding out what it is. You can check your credit score for free here at SocietyOne. Our credit score report will provide you with powerful insights, to see how banks and lenders view your score.
It will also show you any potential inaccuracies, like:
- Duplicate debt amounts
- Repayments you made that weren’t recorded, or
- Loans you didn’t actually apply for.
If you think there’s something on there that isn’t right, it could be a simple mistake by a lender, but it could be a sign that someone has used your identity to obtain credit in your name.
If it’s a mistake, you can contact your credit provider to sort it out. If you think there may have been some identity theft, you may need to contact the Australian Financial Complaints Authority to make a complaint, and get free, independent dispute resolution.
Start making consistent - and on-time - repayments
If you have a credit card or a loan, the best way to improve your credit score is to start making consistent and on-time repayments on your loans or credit cards.
Making prompt repayments makes you look financially responsible, and capable of handling debt. It also lowers your credit utilisation ratio, which is an indicator of how much of the available credit you’re using. The lower it is, the better.
Pay your bills on time
Even though your credit report doesn’t show information about your utility bills, you need to pay these on-time, too. If you don’t, these providers may contact a debt collector - or report your debt to a credit reporting agency. Then, it can show up as a default on your credit report.
A great way to do this is to set reminders in your physical or digital calendar. This way, you know exactly what’s due - and when.
Get a credit card (hear us out)
If you don’t have a credit card, you may want to consider actually getting one. While this seems a little counter-intuitive, it can actually be a helpful way to improve your credit score.
The absence of an open and active account on your credit report can actually be a hindrance, because lenders don’t have enough information about your financial habits to make a decision about whether to loan you money.
And it’s a double-edged sword. Once you have a credit card, showing your lender that you can make prompt repayments will show them that you can manage debt. If you can manage debt, lenders may view you as a more responsible borrower.
...But lower your credit limit
If you’re finding that you can’t manage your credit repayments, you may want to consider lowering your credit limit.
This limits the amount of money you can spend on your credit card, which may make paying your repayments easier.
Don’t apply for multiple credit products in a short time
Applying for different credit products in a short amount of time isn’t a great look to lenders, because it makes you look a little cash-desperate.
The best way to improve your credit score is to only apply for credit when you need it. This makes you look more purposeful with your credit inquiries.
Know what you can and can’t fix
You can’t change or remove information on your credit report that’s correct - even if it’s negative.
- Whether you paid on time or not, all payments you’ve made during the last two years on credit cards, loans or bills will be visible on your report, and
- All payments of $150 or more that are overdue by 60 days or more and applications for credit cards and loans will stay on your report for 5 years.
Speak to a financial counsellor
If you’re struggling to pay your bills on time, you can speak to a free financial counsellor. Financial counselling is a free and confidential service offered by community organisations like legal centres and some government agencies.
They’ll help you get on top of your finances and create a plan to reduce your debt, and improve your score.
Keep track of your score
Credit scores aren’t a set and forget. You should continue to check back every few months to make sure everything looks a-okay. Check your score here!