9 ways to improve your credit score

9 ways to improve your credit score

If you want to learn how to improve your credit score, you’ve come to the right place.

We’ve got nine great tips that can help you boost your standing in the eyes of banks and other credit providers.

Some of these tips will be quick wins; others will take longer to implement. What they have in common is that they’ll turn you into a more credit-worthy consumer.

Why are credit scores important?

There are four main benefits that come from having a good credit score:

  1. More companies want to do business with you, so you have more choice
  2. Your credit applications are more likely to be approved
  3. You can borrow more money
  4. You may be offered lower interest rates or fees

Close extra credit cards

Unless you have a very good reason for needing multiple credit cards, it’s often a good idea to have just one – or even none if you can get by on cash and debit card alone.

Closing those extra card card accounts will reduce the amount of money you can borrow, which in turn will have two benefits.

First, it will reduce your temptation to accumulate more debt. Second, it will improve your credit profile, because when banks assess a loan application, they often work on the assumption that the borrower’s credit cards are permanently maxed out.

Equifax credit scores explained…

  • 833 to 1,200 = Excellent
  • 726 to 832 = Very good
  • 622 to 725 = Good
  • 510 to 621 = Average
  • 509 or less = Below average

Reduce your credit card limit

Assuming you have just one credit card, the next step is to assess the credit limit on that card.

What’s the maximum amount of money you to need to have on call? If you think you can get by with less, you might want to ask your credit card provider to reduce your limit.

Now, when you apply for a loan and a lender assumes your credit card is permanently maxed out, less debt will be tied to your name.

Pay off your entire credit card debt each month

It might be tempting to make just the minimum monthly repayment, which is often between 2 and 3 per cent of your credit card debt.

However, if you pay 100 per cent of the debt each month, you’ll not only reduce the amount of interest you have to pay, you’ll also boost your credit score.

That’s because banks and other credit providers look positively on Australians who eliminate debt at the first available opportunity.


Make loan repayments on time

Whatever your debt – home loan, car loan, personal loan, credit card – it’s important you stick to the repayment schedule.

Making each and every repayment on time is good for your credit score, because it sends a message to lenders that you’re a responsible borrower. Falling behind on your repayments, though, sends the opposite message.

Pay off loans

At the risk of stating the obvious, lenders like it when people repay loans! So if you want to boost your credit score, make sure you repay any loan you take out. Defaulting on loans, by contrast, will damage your credit score.

Experian credit scores explained…

  • 961 to 999 = Excellent
  • 881 to 960 = Good
  • 721 to 880 = Fair
  • 561 to 720 = Poor
  • 560 or less = Very poor

Consolidate multiple debts

Another way to improve your credit score is to convert multiple debts with higher interest rates into one debt with a lower interest rate.

For example, imagine you had these three debts:

  • Credit card #1 – $6,000 debt at 17.99 per cent interest
  • Credit card #2 – $4,000 debt at 19.99 per cent interest
  • Personal loan – $8,000 debt at 12.50 per cent interest

In that case, you’d be able to improve your financial position by doing the following:

  • Taking out a new personal loan, for $18,000, at 12.50 per cent interest
  • Using the new personal loan to pay off your old personal loan and your two credit cards

There are three reasons why lenders and other credit providers would regard this as an improvement:

  1. You would have one loan to manage, instead of three
  2. Your overall interest bill would be lower
  3. You would have a repayment plan to follow (personal loans come with repayment plans – credit cards don’t)

How to improve your credit score

  1. Close extra credit cards
  2. Reduce your credit card limit
  3. Pay off your entire credit card debt each month
  4. Make loan repayments on time
  5. Pay off loans
  6. Consolidate multiple debts
  7. Set up direct debits to pay bills on time
  8. Fix errors on your credit file
  9. Minimise credit applications

Set up direct debits to pay bills on time

It’s good for your credit score when you pay your rent, phone bill, internet bill, water bill, electricity bill and other bills on time – and bad when you don’t.

Direct debits can make the process easier. By setting up an automated payment system, you no longer have to remember to pay bills, and no longer have to find the time.

A word of warning: make sure there’s always enough money in your account to cover the direct debits, because a missed payment will damage your credit score.


Fix errors on your credit file

Sometimes, a person’s credit score might be lower than it should be because their credit file contains false entries or important omissions.

For example, a simple typo could misrepresent how much debt you’re carrying, if a lender says you took out a personal loan for $27,000 instead of $2,700.

Alternatively, the lender’s computer system might play up and forget to record that you’ve been making the repayments on your personal loan.

It’s also possible that your credit file might contain a loan you never even took out – because it was actually taken out by someone with an identical name and mistakenly attributed to you.

Before you can fix errors, you first need to find out if any exist. To do that, you’ll need to contact one of Australia’s credit reporting bodies – Equifax, Experian and Illion – and request a credit report. You’re entitled to one free credit report per year.

If you spot any mistakes, you should contact the credit provider and/or the credit reporting body and ask to have them removed. If that doesn’t work, you should contact the relevant ombudsman.

One final point: only mistakes can be removed. Credit providers and credit reporting bodies won’t remove accurate information from your credit file.

Illion credit scores explained…

  • 800 to 1,000 = High end
  • 700 to 799 = Great
  • 500 to 699 = Average
  • 300 to 499 = Room to improve
  • 299 or less = Low

Minimise credit applications

As a general rule, your credit score benefits when you’re seen to be a responsible user of loans and credit cards – and suffers when you’re not.

With that in mind, it’s good for your credit score when you make a limited number of credit applications – but bad when you make a lot.

Why? The reason is that someone who makes a limited number of applications is generally regarded as more responsible than someone who makes a lot.

The moral to the story is to be very selective in your credit applications. Here are three tips you might want to consider:

  1. Don’t apply for credit cards or loans unless you definitely need them
  2. Don’t apply for any credit product without first asking the provider to estimate your chance of approval – because if your odds are remote, it might be better not to apply at all
  3. Don’t rush the process by applying for, say, three credit cards or three personal loans at once – make just the one application, even if it forces you to wait longer

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Learn more about personal loans

What is a credit rating/score?

Your credit rating or credit score is a number that summarises how credit-worthy you are based on your credit history.

The lower your score, the more likely you are to be denied a loan or forced to pay a higher interest rate.

What causes bad credit ratings/scores?

Failing to repay loans and bills will damage your credit score. So will falling behind on your repayments. Your credit score will also suffer if you apply for credit too often or have credit applications rejected.

How can I improve my credit rating/score?

Your credit score will improve if you demonstrate that you’ve become more credit-worthy. You can do that by minimising loan applications, clearing up defaults and paying bills on time.

Another tip is to get the one free credit report you’re entitled to each year – that way, you’ll be able to identify and fix any errors.

If you want to fix an error, the first thing you should do is speak with the credit reporting body, which may take care of the problem or contact credit providers on your behalf.

The next step would be to contact your credit provider. If that doesn’t work, you can refer the matter to the credit provider’s independent dispute resolution scheme, which would be the Australian Financial Complaints Authority (AFCA).

AFCA provides consumers and small businesses with fair, free and independent dispute resolution for financial complaints.

If that doesn’t work, your final options are to contact the Privacy Commissioner and then the Office of the Information Commissioner.

Will comprehensive credit reporting change my credit score?

Comprehensive credit reporting may change your credit score, either positively or negatively, depending on an individual's situation.

Under comprehensive credit reporting, credit providers will share more information, both positive and negative, about how you and other Australians manage credit products. That means credit reporting bureaus will be able to make a more thorough assessment of everyone’s credit behaviour. That will lead to higher scores for some consumers and lower scores for others.

Is it hard to improve your credit score?

It can be hard to improve your credit score, as it usually requires sacrifice and discipline, but hard doesn’t necessarily mean complicated. Some simple ways you can give your credit score a boost include closing extra credit cards, reducing your credit card limit, pay off any loans and make loan repayments on time.

As a general rule, the lower your credit score, the more remedies you can apply and the greater the scope for improvement.

How do I know if I've got a bad credit history?

You can find out what your credit history looks like by accessing what's known as your credit rating or credit score. You're also able to check your credit report for free once per year.

Can I get a $2000 loan on Centrelink?

If more than half of your income comes from Centrelink benefits, it may be more difficult to have a $2000 loan application approved. Many lenders will check if you can afford a loan’s repayments on the income from your job before they’ll approve an application, and many won’t count Centrelink payments when assessing your income for this purpose.

Some lenders may offer $2000 loans to borrowers on Centrelink – consider contacting potential lenders to check before applying.

How are personal loans regulated?

Personal lenders in Australia are regulated by ASIC (the Australian Securities & Investments Commission) and must follow responsible lending rules. That means they can’t lend money without making “reasonable inquiries” about a borrower’s financial situation and ensuring the loan is “not unsuitable” for them.

Can I get an easy/instant personal loan?

Some lenders are able to approve applications with little documentation and within minutes. However, there is a catch. People who take out easy/instant loans generally pay higher interest rates and are restricted to lower amounts than people who follow a traditional borrowing process.

How do I find out my credit rating/score?

You're entitled to one free credit report per year from credit reporting bodies like Equifax, Dun & Bradstreet, Experian and the Tasmanian Collection Service. You can also get a free report if you’ve been refused credit in the past 90 days.

Credit reporting bodies have up to 10 days to provide reports. If you want to access your report sooner, you’ll probably have to pay.

Can I get a no credit check personal loan?

Personal loans with no credit checks are available and called ‘payday loans’. These are sometimes used as short-term solutions for cash-strapped Australians. They often carry higher interest rates and fees than regular personal loans, and individuals risk putting themselves into a worsened cycle of debt.

What causes bad credit history?

Bad credit history is caused by filing for bankruptcy, defaulting on your debts, falling behind on your repayments and having loan applications rejected. Lenders are wary of borrowers who demonstrate this sort of behaviour because it suggests they might struggle to repay future loans.

Borrowers with bad credit may find it more difficult to be approved for a loan, or they may get higher interest rates when they do get approved.

What is an unsecured bad credit personal loan?

A bad credit personal loan is ‘unsecured’ when the borrower doesn’t offer up an asset, such as a car or jewellery, as collateral or security. Lenders generally charge higher interest rates on unsecured loans than secured loans.

What is debt consolidation?

Debt consolidation is the process of rolling several old debts into one new debt, usually to save money or for the sake of convenience.