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How to improve your credit score

Low credit score? No problem. Here’s how to get your score soaring.

Photo by Aaron Burden on Unsplash

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A higher credit score could help boost your chances of being approved for the best financial products at the best interest rates (e.g. home loans, credit cards and loans). So it's always worth working on your credit score to make it the best it can be.

A higher credit score could help boost your chances of being approved for the best financial products at the best interest rates (e.g. home loans, credit cards and loans). So it's always worth working on your credit score to make it the best it can be.

1. 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 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.

Next step: see your payment history by signing up to ClearScore.

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.

2. 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.

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.

3. Fix mistakes on your report

Your credit score is based on the information held in your credit report. If this information isn't accurate (e.g. an account appearing as open when it is closed) then your credit score won't be either. This could mean your score is lower than it should be.

By checking your credit report regularly, you can spot (and fix) any mistakes, which can help boost your credit score.

ClearScore gets your credit report from Experian, one of the three credit reporting bodies in Australia. So if you find any mistakes on your credit report, you'll need to talk to Experian directly (which you can do here).

4. Don’t apply for lots of credit in a short space 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.

5. Use a variety of credit types

When it comes to taking out credit, it’s best to take out a mixed bag of secured and unsecured credit.

With a secured loan, you borrow against something you own - e.g. a house or car. If you fail to pay the loan, the lender can repossess this item. Types of secured loans include home loans and car loans. They often come with lower interest rates.

With an unsecured loan, you don’t provide any security for your loan. You might use this type of loan to take a holiday or make home improvements, for example. Because they’re riskier for the lender, they often come with slightly higher interest rates, however they’re more flexible.

6. 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.

7. 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 the 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 credit score and report, completely for free.

8. Remember, building your credit takes patience

There is no ‘quick fix’ for improving your credit. Be wary of any company that promises to fix your credit history by removing black marks from your report.

If the information on your credit report (missed payments, defaults, etc) is accurate, you can’t remove it from your report. However, the older a credit problem gets, the less it will affect your credit score - it will begin to fade.

Lenders are more interested in your recent credit history. So focus on making consistent repayments, as these will show up on your credit report and show lenders that you can manage credit well.


Lucy has a wealth of personal finance knowledge, and is one of our in-house experts.