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How to improve your credit score?

Whether you need a loan to purchase a house, another car, go on a holiday of a lifetime, fund a business idea, or get another credit card for business or personal uses, you’ll need a good credit score to get approval. A positive credit rating will give lenders confidence that you can pay back your debts on time, while a bad rating could prevent you getting the financial approval you need for a loan or credit card.

Here’s how to keep on top of your credit score to give you flexibility, freedom and control of your finances.

Keep an eye on your credit report

Almost a third of Australians have errors on their credit file, according to the Australian Information Commissioner. Keeping yourself informed of your score will help you make any changes if you need to improve your finances. It’s a good idea to check in with your credit score annually and look at where you could make some adjustments. Even subtle changes can make significant improvements to your score. You can obtain a free credit report from a credit reporting agency, such as Equifax or Veda.


Make regular payments on your credit card

Regular credit card payments show financial responsibility. Try to make the minimum repayments each month to avoid paying interest while proving you can manage your money. Frequent payments will leave you with a lower outstanding balance, which shows that you’re not using the entire credit available to you each time. It also is a good sign to creditors if you can pay off your credit cards in full.

Avoid overspending so your credit card balance is always low. Try to have control of your spending with a good budget so you can regularly pay off your credit and keep the balance low. Keep on top with how much you’re spending and stick to your budgets.

Pay your bills on time

It’s crucial that you pay back your debts on time for all your active accounts. An overdue payment can be detrimental for your credit score and is likely to stay there as a red mark for several years. Ensure you know what your grace period is for paying overdue bills to avoid any penalties and to keep your rating in the green. It might not seem like a big deal to pay a bill a few days late, but late and missed payments will appear on your account as soon as the deadline has passed.

If you have trouble staying on top of paying bills, it might be worth setting up a direct debit for your payments. This will help you ensure they’re paid on time to avoid any late penalties and ultimately protecting your credit score.

Never ignore debt or unpaid bills

If you’ve received a bill that you don’t think you need to pay, think again. You should never refuse to pay a bill, even if you think you have been charged wrongly. Chase it up and query the payment well before the due date to ensure you don’t get yourself in an outstanding situation. Avoiding payments can stay on your credit history for several years, which can black mark you from getting credit in the future. You can also end up with a serious infringement if you avoid paying bills.

Build a strong credit age

Having your accounts active for longer can improve your credit score. A long track record of credit history gives lenders confidence that you can pay back debts over the long term. But remember, it’s not just how long your accounts have been open for, it’s also critical to ensure they are paid regularly and on time. If you have a long-standing account that has a good history, keep it active.


Avoid having too many credit cards and loans

The more active credit cards and loans you have, the more risk you’re putting on yourself that could affect your credit score. Try to not open new accounts if you don’t need them, as it shows a lack of financial control. It’s also not useful to have credit cards that you don’t use as it doesn’t prove any financial history to lenders.

Give it time if you’ve been declined a loan

If you’re trying to apply for a new credit card or loan and you’ve been rejected, give it some time before you approach another lender. Applying for too many loans and credit cards at the same time can look like a desperate call. Let it breathe and try to make some small adjustments to pick up your score even slightly before applying for credit again.

Diversify your finances

While it isn’t wise to have too many credit cards, it’s a good idea to diversify your loans and credit to show you can manage your finances. That could mean having a car loan, a house mortgage, an education fund, a personal credit card for bills and a business credit card. There’s no point having multiple credit cards of the same type, but if you diversify your credit with a mix of short- and long-term debt, it will show you can handle a range of financial situations which could pick up your credit score.

Separate your business and personal credit cards

If you have credit cards specifically for your business needs, you should separate them from your personal cards, as there are different rules that apply to business credit. Businesses are likely to need more credit; hence you are eligible to apply for more credit from your business. Due to the higher expense required to run a business, it is also easier to max out the credit cards, which can be detrimental to your personal finances. If anything happens to the business, it is wise to have your personal finances separate to protect your personal finance score.


Use credit cards for regular bills

It’s a good idea to use your credit cards for general expenses such as groceries and regular bills that would be in your budget anyway. Instead of regular payments coming out of your savings account, schedule them to come out of your credit, then clear your credit card payments each month. This simple technique will show you can pay off your debts. It won’t be hard for you to factor these payments in, as you would pay for them anyway.

Avoid hard credit enquiries

Your credit history is likely to be queried when you apply for a new credit card, and that’s normal. But if you’ve been applying for a lot of credit cards, your financial lender might request a ‘hard’ credit enquiry, particularly if you’ve been applying for a few too many loans or credit cards. Too many of these ‘hard’ enquiries can look bad for your profile and can shed points from your credit rating. You should only apply for credit when you’re confident it will be approved to avoid potentially getting rejected which will impact your credit score.


How To Improve Your Credit ‘Score’ [Infographic]


Finance Expert, Writer, Entrepreneur

Tammy Richards is a passionate finance expert who is also a writer and business owner. With over 10 years of experience as a finance expert, Tammy wants to share her knowledge with her readers.

Tammy covers and simplifies a range of financial topics, including how start-ups can raise capital and how established businesses can grow successfully. It is clear that she is firmly on the side of Australian small business owners.
Tammy keeps her fingers on the pulse of financial updates. Through her articles, she regularly shares the latest tips and traps around financial products such as business loans and credit cards. She also delivers her information in an easily consumable and interesting way.

Tammy is a keen advocate of promoting financial literacy. She aims to educate small business owners by providing financial insights into common financial problems that businesses face.

“More than anything, I am enthusiastic about using my experience to help Australian small business owners to achieve their financial and business goals,” she says.

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