Everyone in Australia has a credit score.
It acts as an important indicator for lenders to gauge reliability and risk when it comes to repaying a home or personal loan.
This means a good credit score is essential for securing a better interest rate on loans and boosting your overall financial health.
No matter what your credit score is to start with, here are 10 tips to gradually improve your credit score and enhance your financial opportunities.
1. Pay your bills on time
Up until 2017, only negative details, such as missed loan repayments, were noted on credit records.
But when comprehensive credit reporting (CCR) was introduced, it meant the timing of repayments was also recorded.
That means that now, late payments negatively impact your score, and paying on time actively improves it.
Consistently paying your bills, including credit cards, loans, and utilities, by the due date is one of the most effective ways to boost your credit score.
Experian estimates many Australians would have seen a 3% uptick in their credit score as a result of CCR.
Remember, there are no bonus points for paying early or paying extra, but even paying the minimum, and on time, can positively influence your credit score.
2. Avoid repeatedly running late on bills
We’re all human, and occasionally, a late payment might occur.
Late payments are recorded on your credit file if they have exceeded the 14-day time limit.
This means that late payments paid within the 14-day late window won’t affect your score.
But repeatedly running late on bills suggests to lenders that you’re in financial distress.
If you’re running late on a bill, try to ensure it’s a one-off.
And if there is a dispute over a transaction, it's better to pay up first and resolve the issue later rather than risk taking a hit to your credit score.
3. Reduce credit card balances
Overextending yourself with debt can negatively impact your score.
While large debts like a home loan or for appreciating assets like an investment property aren’t a problem, having a large amount of small debts raises red flags on your credit score.
As a guide, Experian found that among Australians with more than seven credit cards, almost one in five had a late payment in the past six months.
On the other hand, less than 3% of those with just one credit card showed a late payment.
Therefore, keeping your credit card balance low relative to your credit limit can improve your credit score.
Aim to use no more than 30% of your available credit.
Maxing out your credit cards signals that you're over-reliant on credit, which can harm your score.
4. Avoid making multiple credit applications
Every time you apply for credit, it results in a "hard inquiry" on your credit report, which can temporarily lower your score by as much as 150 points.
That's because it can suggest you've been rejected by other lenders or that you're desperate for money.
These enquiries can stay on your credit record for up to five years too.
So avoid applying for multiple credit products within a short time.
And don't try to cast your net wide and apply for several loans in the hope that at least one is approved.
It's better to wait until you've found the right loan before making a formal application.
5. Stay clear of buy-now-pay-later
Buy now, pay later (BNPL) providers like Zip, Klarna or Humm will likely check your credit record before approving your account.
BNPL providers can also let credit reporting agencies know if you've run late or defaulted on any payments, potentially lowering your score.
Bear in mind, too, that if your BNPL account is linked to your credit card, overdoing purchases could mean running late with a card payment. This will be noted on your credit file and push your score down.
6. Set up automatic payments
One of the easiest ways to stay on top of bills and repayments is to set up regular, automatic direct debits, which can protect your credit score from dropping due to late payments.
Time your payments to match when you get paid so that there's cash in your account.
It costs nothing to put your bill and loan repayments on autopilot, and it can be an easy way to give your credit score an uptick over time through positive reporting.
7. Try to pay more than the minimum where you can
If you can, pay more than the minimum required payment on your credit cards or loans.
This reduces your outstanding debt faster and demonstrates responsible borrowing behaviour.
8. Consolidate your debt
If you have multiple debts, consolidating them into a single loan can simplify your repayments and potentially reduce interest rates, helping to improve your credit score.
Closing old credit accounts can reduce your available credit and lower your score.
Keep older accounts open if possible, as they show a longer credit history.
9. Keep your details up to date
This seems obvious, but ensuring your details are up to date is a good way to stay on top of your credit score and keep it healthy.
If you change address, don't forget to let the bank, phone and electricity company know your new contact details.
Keeping credit providers up to date with your address means you'll continue to receive bills, reminders and overdue notices for all your credit accounts.
These reminders can help you avoid falling victim to unintended late payment or default.
10. Check your credit report regularly
Regularly reviewing your credit report ensures there are no errors or fraudulent activities that could be harming your score.
You can access your report for free through agencies like Equifax or Experian in Australia.
A key takeaway…
Improving or fixing a bad credit score is an important step on your journey towards home ownership.
But it’s just as important to keep on track with your credit score, even if it looks good.
After all, a lender will not give you a mortgage if your credit score is poor, so take control of the situation and take meaningful strides towards an exemplary credit score.
It all starts with you, and it can start today.
