How Can I Improve My Credit Score?

Imagine a document that could tell someone everything they need to know about you. Not possible, right? Wrong. 

A credit report is that document. It tells lenders exactly what they need to know about your financial situation to decide whether they should lend to you. In your credit report, one of the most important pieces of information is your credit score. It is a critical measure of your financial health and tells a lender exactly how responsibly you use credit. 

Why does a good credit score matter? 

Credit scores measure your ability to manage debt. Simply put, the higher your score, the more responsible you appear to lenders. With a good credit score, you’ll be considered a lower-risk borrower, while those with poor credit ratings will be considered higher risk. The benefit of maintaining a good credit score is that you’ll generally be able to achieve better loan terms and easier approvals, which can lead to significant savings over the course of your life. 

Credit scores influence almost every aspect of your financial life. If your score is low, you could get declined for housing, loans, insurance, jobs, and more. 

How to access your credit score 

Individuals are entitled to receive a number of free copies of their credit report every three months. There are companies that advertise a fee to provide a copy of a credit report. Before jumping in for those services, it may be advisable to consider your free options first.

The Federal Government MoneySmart website provides information on where to access a free copy of your credit report. This information includes the contact details for several credit reporting agencies.

What is a good credit score? 

Different reporting agencies have different definitions of what scores are of a ‘good’ credit rating. The table below demonstrates which scores the three reporting agencies in Australia consider to be below average, average, good, very good, and excellent. 

How to build good credit? 

Having a good credit score enables you to qualify for the best rates and terms on loans and credit cards. Whether you’re building credit from scratch or rebuilding it after some credit mishaps - understanding the factors that go into your credit score will help you determine how to improve it. If you want to boost your credit score, there are various steps you can take.

1. Pay your bills on time, every time. 

If you’re having trouble making payments on time, set up automatic payments for at least the minimum amount due and create calendar reminders and alerts. As you pay your bills on time, you may see a steady rise in your score. If you make a payment more than 30 days late, it will remain on your credit report for seven years. However, over time this negative impact will diminish as you get caught up and pay on time going forward. 

2. Monitor your credit report and fix any errors

Inaccurate credit report information can have a significant negative impact on your credit score. Late payments and high credit balances are considered serious issues. To ensure your credit score isn’t being unnecessarily negatively impacted, review your report for any information you don’t recognise. If you have any inaccurate or fraudulent information on your credit report, you can dispute it with the credit reporting agencies. Credit disputes are typically resolved within 30 days. 

3. Consolidate your debt

Managing multiple debts can be overwhelming. Debt consolidation simplifies the process by combining your debts into single payments. This can help you to keep track of your repayments and avoid missed payments, late fees, and penalties. Individuals may sometimes experience a temporary dip in their credit score after consolidating their debts, however this result is usually minor and short-lived. 

4. Limit credit applications

Only apply for credit when you need it. Why? Because every time you apply for credit, a hard inquiry is run on one or more of your credit reports by the lender. Each hard inquiry will typically take up to five points off your credit score. 

Before you apply for a loan, you should check to see if the lender offers prequalification. Under prequalification, a ‘soft-credit check’ is performed which can give you an idea of your eligibility and potential terms without affecting your credit score. 

5. Keep your credit utilisation rate below 30% 

To keep your credit utilisation in check, pay your credit card balances in full each month. If you are unable to pay in full, it is important to try and keep your total outstanding balance at 30% or less of your total credit limit. Alternatively, you can lower your utilisation rate by asking your credit card company for a card limit increase. 

6. Don’t close old accounts

Even if you no longer use your oldest credit card, you should try to use it every few months or put a small recurring bill on the card to keep it active. By keeping your old accounts open, you can retain the credit history. If you close an old account or open multiple new accounts in a short period, negative results can quickly emerge.

7. Have a mix of loans

By having multiple loan types, you can establish a more comprehensive profile regarding your payment history, trustworthiness, and ability to successfully manage different types of credit. Maintaining a mix of credits demonstrates that you can handle multiple loan types. By doing this you can significantly boost your credit score.

Closing Thoughts

Remember, your credit score is not fixed. It is calculated based on the information that is available at that point in time. As new information is added to your report, your score can fluctuate. 

Having a good credit score enables you to qualify for the best rates and terms on loans. If you’re looking to boost your credit score, this guide will provide you with some simple steps to get started. 

Looking for a personal or business loan? Get the best deal available with JADE Finance

Although good credit generally means lower rates, JADE Finance has a variety of services available, regardless of credit score. 

Based on our realistic view, we completely acknowledge certain events can occur that negatively impact a business’ credit rating. Our database of banks and lenders is extensive and we have the knowledge and expertise to connect you with the ones that provide loans to individuals and businesses with a variety of credit scores.  

So, even if you have had a loan application rejected by a bank or lender, our loan brokers are happy to discuss the options available. Get in touch to see how we can help you by calling 1300 000 008, or securing a Free Quote.