Three steps to transform your credit score in the new financial year

Your credit score helps make your dreams come true. It could mean the difference between securing or being turned down for a home you’ve always wanted to buy. It could be the make or break factor if you’ve been approved for the government’s new HomeBuilder $25,000 grant and need finance to make up the rest of the funds you need for a renovation. Or it could mean you get the go-ahead to access finance for the wheels you’ve had your heart set on that finally mean you have the freedom to go wherever you want.

It’s your ticket to your future. So it’s important to check it regularly. You can get a copy of your score and report for free on ClearScore.

Your credit score is a record of how you manage credit. It is one indicator of your credit risk banks/ lenders may use to understand how likely you are to be responsible when paying back the money they lend to you. Telcos or energy companies may also look at your credit score to ensure you will pay your bills on time. You can find more information about how your score is calculated on the ClearScore site.

Credit scores are calculated across five bands:

• Raise your game: 0-549
• On the up: 550-624
• On good ground: 625-699
• Looking bright: 700-799
• Soaring high: 800-1000

Your credit score is partly responsible for determining your financial future. So, as you can see, it’s essential to maintain good credit hygiene. Some ways to improve your score include paying off your debts and keeping an eye on any changes to your score. For example, your score only reflects new credit enquiries for five years after you make the enquiry. You can check the date of when an enquiry is listed on your credit report, to determine when it will be removed.

You need to use credit wisely to maintain your credit score. This means not applying for credit too often because that can send a message to lenders your cash flow is under threat and they might think you will have trouble paying off your loan.

For instance, you may think it’s a good idea to apply for three credit cards at the one time, to give yourself the best chance of being approved for one of them. But lenders may see potential red flags and reject your application. So it may be better to apply for credit cards one at a time to avoid this risk.

It’s really important to make your repayments on time and in full. Your credit report – which is the information that sits alongside your credit score and contains all the details that go into it – will only record a default if a repayment is more than 60 days old and the debt is over $120.

It’s easy to assume one way to maintain your credit score is to pay off and close your credit cards. But lenders need information like how often you make your repayments to work out if you’re likely to be a responsible borrower when you take out any new loans. So it could be better not to cancel your cards but to only use them when you need to and pay off the balance on or before it’s due. Another tip is to reduce your reliance on credit, but keep your cards open.

It’s also good practice to check your credit score and credit report on a regular basis and make sure all the information is accurate. That way you have an opportunity to correct any mistakes and take steps to improve the way you use credit.

There are lots of simple steps you can take to improve your credit score this financial year. So why not make this the year you take charge of your financial future by keeping an eye on your score, paying off your debts on time and in full and using your credit cards responsibly?