How to Improve your Credit Card Score
Credit history refers to the credit you've taken out and how you've handled credit in the past. For example, regularly paying credit back on time will affect your score positively.
Examples of credit history affecting your score include:
Size of your credit - the larger the riskier you are.
How old is your credit history - the longer the more reliable.
Do you make payments on time?
How old are you? - the younger you are the riskier you are.
How often do you apply for credit? - the more you apply for credit, the riskier you are considered
How does credit work?
Simply put, credit is when you owe money. To improve your credit score, understand what impacts your credit score.
Types of credit you might already have include:
Loans: personal and home
Credit cards
Buy now, pay later services (like Afterpay)
Rent to buy (for example, for a laptop, television or fridge)
Interest-free deals
Payday loans
Mobile phone plans
Internet, electricity, gas, water services
How can I improve my credit score?
If your credit score is low, there are plenty of steps to follow to improve it and get your credit history back in shape:
Pay your bills on time
Making sure you pay all your bills on time every time will contribute to a record of punctual payments. This can boost your credit score, particularly with "positive" credit reporting. You could set up direct debits to ensure you never forget.
Make frequent payments to existing loans
Consider paying small and more frequent payments throughout the month to reduce the debt quicker. You could also pay a little bit more with your monthly payment to have the same effect. It shows you can plan, take control of finances and be responsible, plus your outstanding balance will be reduced.
Fix credit report mistakes
If you've found any incorrect listings in your report, contact your creditor or the credit reporting bureau that you ordered your report through to have them removed. By carefully checking each entry against your own records you can ensure your report accurately reflects your history.
Occasionally mistakes can happen if your repayments weren't accurately recorded by a bank or lender, when you are mistakenly credited for a family member's history, or potentially in a case of identity theft. Some mistakes could harm your score.
Apply for new credit only when necessary
Try not to apply for new credit more than once every three months. Whenever you apply for new credit it will show up on your credit report, and it's known as a "hard enquiry". One hard enquiry isn't concerning, but if many are made in a short period then this could reduce your credit score. A lender might perceive too many applications as a sign you're desperate for credit or careless with money. In comparison to taking out new credit, which may impact your score negatively, a pattern of not applying for any new credit may show an effort to reduce your credit.
Keep credit cards if you're paying them down
If you have a credit card that you consistently and reliably can repay, there's nothing wrong with keeping it to build on your good credit and show lenders you can be trusted. Paying it off each month shows you are responsible and gives banks and lenders a clear history to draw on.
Lower the limits on your credit cards
If you have a card with a high limit that you never get close to hitting, consider lowering the limit. It's a good idea to keep a good gap between your credit limit and how much you actually use. This will lessen your risk of racking up debt and will be a positive action on your credit report to impress lenders. By ensuring your debts stay down, your credit score will gradually improve, too.
Demonstrate stability
Where possible, try not to move house or job too much as lenders want evidence that you're a stable person. Creditors want to know you can be relied upon and sticking to your current residence and workplace is one way this can be displayed.
What is the quickest way to improve my credit score?
In short, there's no super-quick fix for your credit score – repairing a low credit takes time. But it's not impossible. Don't rely on any credit repair companies that promise to have black marks removed from your report as quick-fix efforts are most likely to backfire. Advice that claims to instantly fix your credit history should not be trusted. The best thing to do is follow the steps above and be consistent over time. You could be surprised at how quickly your score improves after a few tweaks to your financial behaviour. Be patient, disciplined, and keep checking your score to stay on track.
What can you do with an improved credit score?
Some of the perks that come with a good credit score include:
Getting a low rate on a peer-to-peer loan. A good credit score can help you to get a better rate on a peer-to-peer loan.
Getting a home loan. A good credit score can help you to get a home loan and is arguably the primary reason credit scores are important.
Future potential to access credit. Whether or not you need credit now, a good credit score will likely be important down the line. For example, you might have credit on a couple of credit cards for travel, but keeping a high score will be important when you need to take out a home loan.
What to avoid if you're working on your credit score
When you're actively working on your credit rating, make sure you don't fall into some of the common traps that would have contributed to your poor score in the first place.
Here are a few things to avoid when you're trying to boost your credit score.
Don't apply often for a lot of new loans or credit cards. These show up in your credit report and you risk being rejected, which reflects badly in your score.
Avoid making late payments on your credit card or mortgage. A missed payment is if it's more than 14 days late. It could be recorded on your report for up to two years.
Avoid paying bills late. Payments of $150 or more that are overdue by 60 days or more remain on your report as a default for two years.
Don't cancel your credit card. It's tempting to cancel a card as soon as you pay it off but keeping a card without building on debt can reflect well.
Steer clear of payday loans. Credit reporting bodies usually look at the type of providers you've applied for credit with and payday lenders have a different level of risk than a bank. These loans also come with large fees and could make it trickier to pay back.
Don't forget to change your personal details. When you move house or change phone numbers, let any accounts you have know so they can re-direct bills. You want to avoid missing a payment and having it appear as a credit infringement or overdue debt.
Don't forget to keep on top of your score. Don't be in the dark about your finances.
If you feel you need a little more help to get on top of your score, consider speaking with a professional financial Adviser. Some financial advice could help you get back on the right track financially and your credit score could be improved as a result.