How to Improve Your Credit Score in Australia

A credit score is more than simply a printed number. It’s a gateway to possibilities, including loans, credit cards, and jobs. Furthermore, the higher one’s score is the door expands wider. The length of credit history, debts outstanding, new credit, credit mix, and payment history are among the elements used in calculating credit scores. Versions of these scores are used by banks when making lending decisions. That implies that the benefits of having high credit are relevant to practically every part of life, whether a person is looking to buy their first car or obtain financing to launch a small business.  

Even though a poor credit score may seem like a difficult situation to climb out of, it is not insurmountable. A history of on-time payments, low credit card balances, a variety of credit card and loan accounts, older credit accounts, and few credit inquiries are all factors that raise a credit score. Major factors that hurt a credit score include missed or late payments, excessive credit card balances, and collections. One can raise their credit score by taking some of the methods outlined below.

Examining own credit report: It helps to know what factor might be working in favor or against the borrower. In Australia, anyone can get a free copy of their credit report every three months, (previously twelve months) from each credit reporting body’s official website e.g. illion, Experion and Equifax. Then one should review each report again to see what is improving or detracting from their score.

Respecting deadlines and remaining organised: One of the most crucial factors considered when determining a person’s credit score is their payment history. When using a credit card, a person should be sure to pay the whole balance due or as much as they are able to for that month, not just the bare minimum to keep using it. Regularly paying bills and EMIs demonstrates a responsible approach to borrowing and shows that the person is unlikely to fall behind on their payments.

Maintaining a credit consumption of 30%–40% or less is a good idea: Overuse of credit cards frequently results in a bad credit score. When using a credit card responsibly, one should limit their spending to no more than 30 to 35 percent of their available credit and should consider switching to a different card if they frequently need more than that.  A credit card should be considered a necessity not a luxury.

Credit score can go up with a healthy combination of credit: A good credit score is influenced by possessing several different types of credit. Revolving and installment credit are the two most typical kinds of credit accounts. A credit card account is a type of revolving credit that enables borrowers to borrow money, spend it, and then pay it back. They receive a fixed credit limit from the lender, which they can utilise all at once or partially. The set monthly payment paid on a car loan or home loan is equivalent to an installment credit. Also, it is ideal to keep the secured and unsecured credit that has been granted, in balance. Increasing the variety of one’s credit, demonstrating their ability to handle various debts, boosts one’s credit score.

Avoiding Hard Inquiries and New Credit Requests and Their Effects: Multiple requests made at once could raise a question mark against someone’s name. It suggests credit-hungry behaviour. This could worsen the situation and further damage the credit score. Banks could interpret one’s demand for money as a sign that he is having financial problems and pose a greater risk as a result. To raise someone’s credit score, it’s a good idea to put off applying for new credit cards for a while.

Credit age matters: Length of “credit history” refers to the reported length of time an account has been open, while the average age of all a person’s accounts is referred to as their “credit age.” For an account with a good payment history and no delinquencies, the longer the credit age, the better the credit score.

Keeping track of errors in credit reports: Regularly checking the credit score is a beneficial and risk-free habit. It enables someone to keep an eye on their financial situation and, in light of that, to come up with appropriate solutions. By using any credit bureau services, anybody can check their credit score for FREE and get a complete report. To get the report, he must enter some basic data and respond to a few questions. There is no restriction on how often one can check because this is a soft inquiry that has no impact on the credit score.

Old is gold: A solid track record of on-time payments demonstrates responsible behaviour. Once a person has paid off all of their debt, they should not rush to delete their records from the accounts; leaving a trail of timely EMI payments will help the credit score. Additionally, if someone intends to stop using any extra credit cards, they should be sure to keep their previous cards and cancel their fresh ones. Long-term on-time payments on a credit card are a sign of reliability.

The credit score is affected by all of the aforementioned elements, but the payment history (35%) and credit utilisation ratio (30%) have the highest effects. Individual rest factors each have a 10-15% impact. The task of raising credit scores is not difficult. But it’s also not simple. With the right financial discipline, it is achievable. The most crucial factor is making payments on time and not accumulating excessive credit, once the credit score is successfully raised. To maintain excellent financial health, keep in mind that financial discipline is essential.

Click here to find out how to check your credit score for free in Australia.