Financial Education Series

Tips to improve your credit score

Fixing your credit score can’t be done overnight and will take time and patience. 

Before thinking how you can boost your credit score, you need to understand your credit rating and what affects your score. Then simply follow these steps and watch your score improve!

1. Always make payments on time

All the effort to improve your credit will mean nothing if you pay late. Why? Payment history is the single biggest factor that affects your credit score, and late payments can stay on your credit reports for 7 years. The easiest way to avoid them is to schedule automatic withdrawals in line with your salary. 

2. Space out your credit applications

Lending agencies view multiple recent applications as a sign of financial distress. They raise red flags about your ability to make future payments. It doesn’t matter what form of credit you apply for, or how much you want to borrow, each application will record a hard enquiry on your report.

Waiting about six months between applications is a good rule of thumb and can increase your chances of approval. 

3. Review your credit reports

Check your credit report for errors that could damage your score and dispute any you spot so they can be corrected or removed from your file. 

Be aware that a credit provider is entitled by law to obtain a credit report even though a loan may not be approved or provided. The record of the credit enquiry will be listed on your credit file. This is not an error. 

4. Pay attention to credit utilisation

The fact that you have access to a certain amount of money doesn’t necessarily mean that you should use it all. A good credit utilisation rate never exceeds 30%. So, if you have a credit limit of $5,000, try not to use more than $1,500. But if you do – make sure you pay it back as quickly as possible. 

5. Diversify your accounts

While you should only borrow money when absolutely necessary, having a variety of credit accounts can demonstrate you can manage credit responsibly. Your credit mix (credit cards, home loans, auto loans etc.) counts for 10% of your credit score. Adding another element to the current mix helps your score, as long as you make on-time payments.

6. Be aware of your financial situation

Doing a financial wellness check can help you determine what adjustments you need to make in your life. Start budgeting and take control of your spending and borrowing habits.

Improving your credit score is a long-term process, but it’s a great goal to have. Especially if you’re planning to apply for a loan to make a big purchase such as a new car or home. The sooner you begin working to improve your credit, the sooner you will see results! Sticking to the above suggestions could make all the difference. Good luck!