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How to improve credit score in Australia: A Guide
A good credit score in Australia typically ranges from 700 to 850, though this may vary slightly depending on the credit reporting agency. This comprehensive guide will provide practical steps that can help improve your credit score, explain its importance, and offer tips to maintain a healthy financial profile in the Australian credit landscape.
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Why You Should Have a Good Credit Score
Having a strong credit score is important for your financial wellbeing in Australia. Here’s why:
Better Chances of Getting Financing from Credit Institutions
A high credit score opens doors to various financial opportunities. Lenders typically view individuals with good credit scores as less risky, which may increase the likelihood of loan approval. This can apply to:
- Personal loans
- Home loans
- Car loans
- Credit cards
With a good credit score, you’re more likely to get approved for these financial products , although approval will depend on several factors, including your income and debt levels.
Lower Interest Rates on Mortgages, Personal Loans, or Credit Cards
- One of the major benefits of having a good credit score is access to better interest rates. Lenders are likely to offer more favourable terms to borrowers with higher credit scores, which can lead to significant savings over time.
- For example: On a mortgage, even a 0.5% difference in interest rate could potentially save you thousands over the life of the loan.
- Personal loans and credit cards with lower interest rates can help you save on finance charges.
- Some credit card providers offer premium cards with better rewards programs to those with excellent credit scores.
By maintaining a good credit score, you’re improving your chances for better financial terms and potential long-term savings.
Understanding Credit Scores in Australia
Before diving into how to improve your credit score, it’s essential to understand how credit scores work in Australia.
What is a Credit Score?
A credit score is a number between 0 and 1,000 (or 0 and 1,200, depending on the credit reporting agency) that represents your creditworthiness. It’s calculated based on the information in your credit report, which includes your credit history, current debts, and financial behaviour.
Read here for more info on what is credit score.
Credit Score Ranges in Australia
Different credit reporting agencies may use slightly different ranges, but generally:
- Excellent: 800-1,000
- Very Good: 700-799
- Good: 625-699
- Fair/Average: 550-624
- Weak/Below Average: 0-549
It’s important to understand that several factors impact your credit score, which can help you identify the steps to improve it. Key factors include your payment history, credit utilisation, the length of your credit history, the types of credit accounts you hold, and recent credit inquiries. Understanding these factors is crucial when learning how to improve your credit score in Australia.
Read here to understand with more detail what is a good credit score.
How to Increase Credit Score: Best Tips
Improving your credit score isn’t an overnight process. It requires consistent, responsible financial behaviour. However, taking the following actions can help you see results more quickly:
1. Review Your Credit Report Regularly
Start by understanding your current financial standing. Regularly checking your credit report allows you to:
- Spot any errors or potential fraudulent activities
- Understand which factors are impacting your score
- Track your progress over time
In Australia, you’re entitled to a free credit report once a year from each of the major credit reporting bodies: Equifax, Experian, and illion. Take advantage of this opportunity to stay informed about your credit health.
Potential Impact: Immediate to short-term
How Long to Work: Ongoing process
2. Pay Bills on Time, Every Time
Timely payment of bills is crucial for improving your credit score. This includes:
- Utility bills
- Rent payments
- Loan repayments
- Credit card bills
Set up automatic payments or reminders to ensure you never miss a due date. Even a single late payment can negatively impact your score.
Potential Impact: Medium to long-term
Timeframe for Improvement: Ongoing process, with improvements typically seen within 3-6 months of consistent, on-time payments.
3. Get Credit for Rent and Utility Payments
While traditionally not included in credit reports, some services now allow you to have your rent and utility payments reported to credit bureaus.This can be particularly beneficial if you’re trying to build or improve your credit history.
Check with your landlord or utility providers if they participate in such programs. If they don’t, consider you might consider using third-party services that report these payments on your behalf.
Potential Impact: Medium-term
Timeframe for Improvement: Typically 6-12 months, depending on your individual credit profile and consistent reporting.
4. Keep Credit Card Balances Low
Your credit utilisation ratio – the amount of credit you’re using compared to your credit limits – plays a key role in determining your credit score. It’s generally recommended to keep this ratio below 30%. For example, if your credit limit is $10,000, try to keep your balance below $3,000.
To achieve this:
- Pay more than the minimum payment each month
- Make multiple payments throughout the month
- Consider using your debit card for some purchases
Potential Impact: Short to medium-term
Timeframe for Improvement: Typically 1-3 months, depending on consistent credit management and other factors.
5. Limit New Credit Applications
Every time you apply for credit, a hard enquiry is recorded on your credit report. Too many hard enquiries in a short period can negatively impact your score. Be strategic about when and how often you apply for new credit.
If you’re rate shopping for a specific loan (like a mortgage), try to do all your applications within a short timeframe (usually 14-45 days). Most credit scoring models often count these as a single enquiry.
Potential Impact: Short-term
Timeframe for Improvement: Immediate effect, but hard enquiries generally only impact your score for up to 12 months.
6. Maintain Older Accounts
The length of your credit history matters. Keeping older credit accounts open, even if you’re not using them regularly, can positively impact your credit score. This is because:
- It increases the average age of your accounts
- It potentially lowers your overall credit utilisation ratio
If you have old credit cards with no annual fee, consider keeping them open and using them for small, regular purchases that you pay off immediately.
Potential Impact: Long-term
Timeframe for Improvement: Ongoing process
7. Diversify Your Credit Mix
Credit scoring models often favour a mix of different types of credit. This might include:
- Credit cards
- Personal loans
- Car loans
- Mortgage
However, avoid opening new accounts solely for the sake of diversification. Only apply for credit that you genuinely need and can manage responsibly.
Potential Impact: Medium to long-term
Timeframe for Improvement: Typically 6-12 months, depending on consistent and responsible credit management.
8. Reduce Outstanding Debt
Paying down existing debt, especially high-interest debt like credit card balances, can helpimprove your credit score over time. This lowers your credit utilisation ratio and demonstrates responsible credit management.
Consider using the debt avalanche or debt snowball method to systematically pay off your debts.
Potential Impact: Short to medium-term
Timeframe for Improvement: Typically 3-6 months, depending on consistent debt repayment.
9. Build Up Savings
While savings don’t directly impact your credit score, maintaining a healthy savings account can indirectly help by:
- Providing a buffer for unexpected expenses, reducing the likelihood of missing payments
- Demonstrating financial stability to potential lenders
It’s generally recommended to aim for 3-6 months of living expenses in an emergency fund.
Potential Impact: Indirect, long-term benefit
Timeframe for Improvement: Ongoing process
10. Become an Authorised User
If you’re struggling to build credit on your own, consider becoming an authorised user on someone else’s credit card account. This can allow youto benefit from their positive credit history.
However, it’s important to ensure the primary account holder has a good credit history and uses the card responsibly, as their actions will also influenceyour credit score.
Potential Impact: Short to medium-term
Timeframe for Improvement: Typically 1-3 months, depending on consistent responsible use by the primary account holder.
11. Request Credit Limit Increases
Requesting a higher credit limit can help lower your credit utilisation ratio, which may potentially affectyour credit score. However, be cautious:
- Only request increases if you’re confident you won’t be tempted to spend more
- Some lenders may perform a hard enquiry when you request an increase, which could temporarily lower your score
Potential Impact: Short to medium-term
Timeframe for Improvement: Typically 1-3 months, depending on how the new limit affects your credit utilisation and other factors.
12. Use Credit Responsibly
Consistently using credit in a responsible manner is key to improving and maintaining a good credit score. This means:
- Making small, regular purchases on your credit cards
- Paying off the full balance each month
- Avoiding maxing out your credit cards
Remember, having credit and using it responsibly is better for your score than not using credit at all.
Potential Impact: Long-term
Timeframe for Improvement: Ongoing process
13. Seek Professional Advice
If you’re finding it difficult to improve your credit score on your own, you might consider seeking help from a financial advisor or credit counsellor. They can offer personalised advice and strategies tailored to your specific financial situation.
Look for accredited professionals through organisations like the Financial Counselling Australia or the Financial Planning Association of Australia.
Potential Impact: Varies depending on individual circumstances Timeframe for improvement: Ongoing process with regular check-ins
14. Fix Errors on Your Credit Report
Regularly review your credit report for any errors or inaccuracies. If you find any, dispute them immediately with the credit reporting agency. Common errors include:
- Incorrect personal information
- Accounts that don’t belong to you
- Paid debts listed as unpaid
- Duplicate listings of the same debt
Potential Impact: Short to medium-term
Timeframe for Improvement: Typically 1-3 months for corrections to be reflected, depending on the investigation process.
15. Consider a Debt Consolidation Loan
If you’re juggling multiple high-interest debts, a debt consolidation loan might help. This involves taking out a single loan to pay off all your existing debts, potentially at a lower interest rate. Benefits include:
- Simplifying your payments into one monthly payment
- Potentially lowering your overall interest rate
- Helping to improve your credit utilisation ratio
Potential Impact: Medium to long-term
Timeframe for Significant Impact: 6-12 months to see significant impact
Common Credit Score Myths in Australia
As you work on improving your credit score, it’s important to be aware of common myths that might mislead you:
Myth 1: Checking Your Own Credit Score Lowers It
Fact: Checking your own credit score is considered a “soft inquiry” and doesn’t impactyour score. In fact, regularly monitoring your score is a good financial habit.
Myth 2: You Only Have One Credit Score
Fact: In Australia, there are multiple credit reporting agencies, each with their own scoring model. This means you may have slightly different scores with different agencies.
Myth 3: Closing Old Credit Accounts Will Improve Your Score
Fact: Closing old accounts can actually hurt your score by reducing your credit history length and potentially increasing your credit utilisation ratio.
Myth 4: You Need to Carry a Balance on Your Credit Card to Build Credit
Fact: Paying your credit card balance in full each month is the best way to build credit score. Carrying a balance only results in unnecessary interest charges.
Myth 5: Your Income Affects Your Credit Score
Fact: While income is considered when you apply for credit, it is not used in calculating your credit score. What matters is how responsibly you manage credit.
Understanding these myths can help you make informed decisions as you work to improve your credit score in Australia.
How Credit24 Can Help If You’re Having Financial Issues
At Credit24, we understand that life can throw financial curveballs. Whether you’re working on improving your credit score or facing temporary financial challenges, we’re here to support you in your financial journey.
Our personal loans are tailored to your individual needs and circumstances. We consider applications even from those with less-than-perfect credit histories, giving more Australians access to financial solutions.
Here’s how Credit24 can assist in your journey to improve your credit score:
- Flexible Loan Options: Our loans are designed to suit various financial situations. Whether you need a small amount to manage short-term expenses or a larger sum for significant costs, we have options to help you maintain responsible credit management.
- Quick and Easy Application Process: Our online application is straightforward and can be completed in minutes.You’ll typically receive a fast decision, often within minutes of applying, depending on individual circumstances. This allows you to manage your financial situation efficiently.
- Fast Funding: If approved, you may havethe money in your account in as little as one minute depending on processing times and individual circumstances. This rapid turnaround can be helpful when facing urgent financial needs and may help you avoid late payments that might negatively impact your credit score.
- Transparent Terms: We believe in clear, upfront communication. Our loan terms are straightforward, with no hidden fees or charges, helping you to stay in control of your finances..
- Opportunity to Rebuild Credit: By making timely repayments on a Credit24 loan, you can demonstrate responsible credit behaviour, which could help improve your credit score over time. This is especially beneficial if you’re workingto improve your credit score in Australia.
Remember, while a loan may provide immediate financial relief and could support your efforts toimprove your credit score, it’s important to borrow responsibly. Use our online calculator to determine what you can comfortably afford to repay.
Improving your credit score takes time and consistent effort, but it’s a journey worth embarking on. By following the tips in this guide and managing your finances responsibly, you can work towards a healthier credit profile. And remember, if you need financial assistance along the way, Credit24 is here to help you navigate your options and support you in managing your finances in Australia
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Disclaimer:
IPF Digital Australia Pty Ltd, trading as Credit24, ABN 59 130 894 405. Australian Credit Licence 422839. The information in this article is of general nature and does not take into consideration your objectives, financial situation or needs. Lending criteria, fees and charges apply. For more information about our products, eligibility criteria and terms and conditions, please visit www.credit24.com.au.
Sources:
- https://www.equifax.com.au/personal/how-improve-your-credit-score
- https://www.nab.com.au/personal/life-moments/manage-money/money-basics/improve-creditworthiness
- https://www.commbank.com.au/articles/credit-cards/tips-to-improve-your-credit-score.html
- https://www.experian.com/blogs/ask-experian/credit-education/improving-credit/improve-credit-score/
- https://www.investopedia.com/how-to-improve-your-credit-score-4590097
- https://www.creditsmart.org.au/know-your-credit-score/how-to-improve-your-credit-score/
- https://www.nerdwallet.com/article/finance/raise-credit-score-fast
