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How to improve your credit score

12 steps to increase your credit score

21 March 2023Lloyd Smith 8 min read
how to improve your credit score in 10 easy steps
Photo by Aaron Burden on Unsplash

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Improving your credit score comes from consistently managing your finances well every month. The benefit of a good score is that you can get access to credit when you need it, at the lowest possible interest rates.

At ClearScore we have tracked hundreds of thousands of users over the last year and seen how users can improve their score rapidly. We have noticed that users who regularly check their score improve their credit score 10 times more than people who only check it once. This is because improving credit scores is about persistently doing the basics of managing your credit each and every month. It isn’t rocket science, and everyone can improve their score no matter where they start from.

We have broken down the steps to improve your credit score into the Essential 8 steps for everyone, Key factors based on your credit score and Power user tips from the users who have made the biggest strides.

Credit scores indicate the creditworthiness of an individual. That’s why a credit check is one of the first things a credit provider performs when they receive an application for new credit.

An applicant with a good credit score is considered a low-risk borrower. Lenders are more likely to lend on favourable terms to such borrowers, including offering a lower interest rate or waving processing fees. Having a good score can help you save thousands of dollars.

There are several ways to improve credit score. Here are some simple things you can do:

1 - Ask for higher credit limits

If you are worried about how to increase your credit score quickly, get a credit card with a higher credit limit than you require or request your card issuer to increase the credit card limit on your existing card.

With a higher credit limit and the same amount of outstanding balance, your credit utilisation reduces. In turn, this boosts your credit score. However, you will need to ensure you don’t end up using the additional limit.

If you have a decent credit history or your current earnings have gone up since the limit on your existing card was sanctioned, your request for a higher credit limit is likely to be approved.

2 - Check your credit report

Reviewing your credit report from time to time is also a good practice to steadily get your credit score to improve. Credit reporting agencies continuously receive new data from credit providers. Every new addition plays a crucial role in how the credit score is calculated by the scoring model.

Regularly checking the information in your credit file can also help detect errors. Incorrect information such as repayments made but not recorded, or debts showing up in your name that you have not borrowed can harm your score. So always cross-check the entries of your report against the bank statements and other payment receipts.

You can check your free credit report by signing up to ClearScore.

3 - Dispute credit report errors

When you do find any errors in your credit report, it's important to dispute them before they can cause any long-term damage to your credit score.

Most credit reporting bodies allow you to dispute an error on your credit report online through their website or through direct mail. You will need to provide supporting documents (such as payment receipts) for the entry you are disputing.

The credit reporting body contacts the credit provider who reported the entry and asks them to investigate the claim. Usually, you can expect a resolution within 30 days.

4 - Add to your credit mix

Applying for new credit products that you currently don’t have in your portfolio is an effective way to increase credit score in Australia, especially if you have a short credit history.

Additionally, credit mix helps you to build your credit history. When a lender performs credit score checks, it also shows that you are good at managing different obligations associated with different credit types. So if you currently only use a credit card, apply for a loan for a comprehensive credit profile and stay on track with repayments.

When you are applying for a new product, check whether the lender reports to all the leading credit bureaus to increase your chances of getting a higher score.

5 - Hold onto credit cards you can manage

If you are already struggling to pay debts on time, get rid of credit cards you don’t need.

Having more cards than you need gives you access to more credit. Having an additional credit limit can increase spending and leave you with more bills to repay. If you are not careful, you may end up missing repayments which can get your score down by a few points.

6 - Keep old accounts open

Can old accounts on my credit file impact my credit score? The answer to that is yes.

The age of your credit accounts is an important factor. The older the average age of your credit account, the better is your score. Even if you are not using a particular credit account, don’t be in a hurry to close them. Closing accounts when you have other newer accounts with outstanding dues can reduce the available credit and increase your credit utilisation, which can in turn bring your credit score down.

7 - Consider consolidating your debts

Consolidating your debts is a great hack to improve credit score.

Instead of worrying about paying off multiple debts, you can take out a debt consolidation loan to pay off the debts altogether. You will be only responsible for making payments towards a single loan, reducing your chances of missing payments.

Moreover, if you can get a favourable interest rate on the loan, you will find it easier to pay off the debt faster. This can, in turn, improve the credit utilisation ratio and increase credit rating.

8 - Always pay your bills on time

If you always pay your bills on time, this can boost your credit score. Lenders like to see a good track record of you borrowing money and paying it back, and can see your payment history for the last 24 months.

If you do miss a payment, this can negatively impact your score. If this happens, try to catch up within 14 days so you won’t be reported as being in arrears (this is known as a ‘grace period’).

Missing an occasional payment isn’t the end of the world, especially if you otherwise make all your payments on time. However, try not to miss a few payments in a row, or miss payments on a number of loans or credit cards. If you do, try to get back on track with your payments as soon as possible.

Some people find it helpful to set up direct debits to pay their loan and credit card payments. This means you can relax, knowing you won’t miss a payment.

If you’re having trouble making ends meet, contact your credit provider or a financial counsellor - they can help. If you start managing your credit well and paying on time, your score should increase. Talking to a financial counsellor won’t hurt your credit score.

9 - Avoid defaults and other negative entries

If you miss your payment by quite a while (normally 60 days), you might get a default on your credit report. This will appear on your report for 5 years, before dropping off and the defaults can affect your credit score directly.

If you do have a default, you can improve your score by continuing to pay off the debt until it’s settled. And if you have other loans, continue to make repayments on time to build up good credit history. Old credit problems affect your credit score less, as lenders are more interested in your recent credit history.

It’s also worth noting that court judgments and bankruptcies will also stay on your credit report for 5 years, and can have a negative impact on your score. Again, they will have less impact the older they get.

10 - Don’t apply for lots of credit in a short span of time

Every time you apply for credit, an ‘enquiry’ is carried out on your account and a mark is left on your credit report. If you make too many credit applications in a short space of time, this could negatively impact your credit score, as it makes lenders think you're desperate for credit.

So if you're rejected for credit, try to resist the temptation to apply multiple times. Instead, wait a while before you apply again. And before you do, check your credit report information is accurate to boost your chances of success. Take a look at how long inquiries can stay on your credit report.

11 - Look out for fraud

Although rare, identity fraud is becoming an increasing problem. If you fall victim, this could potentially damage your credit score, as you become responsible for the credit actions of someone else.

Checking your credit report regularly will help you spot financial fraud quickly. If anyone is trying to open credit in your name, you'll be able to see the early signs in the Enquiries section of your report. This section lists all of the 'hard' credit searches carried out in your name.

If there are any credit enquiries you don't recognise, it could be fraud (though it's always worth double checking with the named lender). You should report any fraudulent activity to ReportCyber.

12 - Make sure you have a good overall view of your finances

Your credit score is calculated by a credit reporting body. There are three credit reporting bodies in Australia: Experian, Equifax and Illion.

Each bureau may hold slightly different information about you, which means that you will have 3 different credit scores.

It’s worth checking in with all three companies to get a good overall view of your finances. ClearScore shows you your Experian and illion credit scores and reports, completely for free.

There is no silver bullet to improve credit score. The time taken to improve credit rating is determined by several factors, including repayment history, length of your credit history, credit utilisation ratio, and credit inquiries.

So, make sure to maintain a good score consistently and check your credit score regularly to spot early signs of stress.

If you pay off the only loan on your credit file or have outstanding loans with higher balances than the loan you paid off, your credit score can drop for a short while. In fact, paying off loans may not be the best solution for directly improving your credit score

But there are other benefits of paying off loans. Getting rid of debt and not ending up with high-interest payouts provides you better flexibility with your personal finances. It also brings down your debt-to-income ratio, which is useful when applying for a new credit line.

A new credit card can be both beneficial or harmful for your credit, depending on how you use it

If a credit card is a new credit product in your portfolio, it can add to the credit mix, improve credit utilisation, and increase your score. At the same time, applying for a new card can show up as a hard inquiry on your file and reduces the average credit age. Too many hard inquiries can decrease the score for a short while.

So how to choose a credit card that improves your credit score? Go for a card that suits your financial needs, ensure that you pay credit card dues on time, and never exceed your available credit limit.

A good credit score can go a long way to ensure easier access to credit products on favourable terms. You can implement the tips above to improve your score. Knowing your current score is a great starting point.

Wondering how to check your credit score? Sign up with ClearScore and get your credit score for free.

Lloyd Smith Image

Written by Lloyd Smith

General Manager AU

Lloyd spreads the word about how awesome ClearScore is.