5 tips to improve your credit score

5 tips to improve your credit score

It’s not a number you may think about often, but your credit score defines your creditworthiness to a lender.

In other words, reputable lenders evaluate how likely you are able to pay back a loan based on your past financial conduct. Generally, big banks have stricter criteria when assessing loan applications, especially in slower economic times.

The lower your credit score, the more likely a lender may decline you, as they may believe you could have trouble paying off a loan. Lender rejections contribute to a lower credit score, making it difficult for some to escape the cycle of weak creditworthiness.

The higher your credit score, the higher your chances of getting approved for a loan. Not only that, those with stronger credit records may be able to save money in the long run as reliable borrowers are coveted by reputable lenders.

If you don’t know what your credit score is, it might be a good idea to find out, as one day you may find yourself urgently needing to improve your rating for a loan application.

Here are some tips to give your credit score a boost and ensure your future loan applications are rock solid.

  1. Check your credit report – As your credit score is based on the information in your credit report, it’s worthwhile to understand it. Look through and make sense of how each listing might have contributed to your credit rating. There’s also the chance that errors have been made by either a lender or the credit reporting agency. If that’s the case, get in touch with the relevant body and request an amendment.
  2. Don’t make too many loan applications – Refrain from making multiple loan applications in a short span of time. Every loan application you make and every rejection you receive will appear on your credit history. These listings can make you look unreliable to future lenders.
  3. Work on your existing debts – Being debt-free or having fewer debts is a plus to lenders when assessing loan applications. If you’re in a position to, try getting rid of any existing debts you have. You can do this by making contributions on top of your minimum repayments. Keep in mind some lenders may charge fees when you make extra repayments.
  4. Build your savings – Another thing that will give lenders a positive impression is having a nice stash of cash in the bank. As lenders usually need to see your bank statements from the past three months, a track record of consistent savings will pay off when you apply for a loan.
  5. Don’t make late payments – You might think you’re safe by not missing any payments, but late payments may still weaken your credit score. If being tardy can cost you money in the long run, it could be worth your time to be punctual with your mortgage repayments, rent, credit cards and utility bills.

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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.

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.

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.

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.

Can students with no credit history get loans?

It is possible for students with no available history of borrowing or managing money to get a personal loan, though it may be more difficult as well as expensive than for borrowers with a good credit history.

Having no credit history means having no credit score. While many lenders may consider having no credit score to be better than having a bad credit score, they may still consider it riskier to lend to an unknown borrower and may charge higher interest rates or fees than to borrowers with good credit scores.

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.

How long will I have bad credit?

Most negative events that appear on a person’s credit file will stay in their credit history for up to seven years.

You may be able to improve your credit score by correcting errors in your credit report, clearing outstanding debts, and maintaining good financial habits over time.

Can I get guaranteed approval for a bad credit personal loan?

Few, if any, lenders would be willing to give guaranteed approval for a bad credit personal loan. Borrowers with bad credit histories can have more complicated financial circumstances than other borrowers, so lenders will want time to study your application. 

It’s all about risk. When someone applies for a personal loan, the lender evaluates how likely that borrower would be to repay the money. Lenders are more willing to give personal loans to borrowers with good credit than bad credit because there’s a higher likelihood that the personal loan will be repaid. 

So a borrower with good credit is more likely to have a loan approved and to be approved faster, while a borrower with bad credit is less likely to have a loan approved and, if they are approved, may be approved slower.

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.

What is a secured bad credit personal loan?

A bad credit personal loan is 'secured' when the borrower offers up an asset, such as a car or jewellery, as collateral or security. If the borrower fails to repay the loan, the lender can then seize the asset to recoup its losses.

What documentation is needed for a self-employed personal loan?

Personal loans may require a borrower to provide proof of identity, proof of residence, details of any other outstanding loans (including credit cards), details of assets they own (e.g. savings, car, property), and proof of income.

While borrowers in full-time or part-time employment can often provide payslips and similar documents to prove their income, self-employed borrowers may need to provide other documents, such as bank statements or tax returns, to demonstrate that their income can cover a loan’s repayments.

What is the average interest rate on personal loans for single parents?

Like other types of personal loans, the average interest rate for personal loans for single parents changes regularly, as lenders add, remove, and vary their loan offers. The interest rate you’ll receive may depend on a range of different factors, including your loan amount, loan term, security, income, and credit score.

What is comprehensive credit reporting?

Comprehensive credit reporting is a system which includes both positive and negative information on a person’s credit file. Before comprehensive credit reporting was introduced, only negative information was included.