Likely we’ve all heard terms like ‘credit score’ and ‘credit rating’. But what do they really mean and, if you suffer from a damaged credit score, is there any way of repairing and improving it?
In this post, we’ll take a look at exactly what a credit score is and how to improve your credit score.
What Is a Credit Score In Australia and Why Is It Important?
A credit score, also known as a credit rating, is a numerical score that indicates the health of your credit history (if you have one). It’s designed to let banks, private lenders and other businesses understand if there are risks attached to extending you any form of credit.
Essentially, the higher your score is, the healthier your credit rating is and the more likely lending institutions will allow you to borrow money. The same goes for any business that extends credit in one form or another, such as offering you an account that you pay at the end of the month and so on.
The credit score ranges between 0 – 1200, with 1200 obviously being the best score attainable.
Your credit score works in conjunction with your credit report. This report summarises both positive and negative reports that ultimately make up your current credit score. The report offers more details on why your score is the way it is, so lenders have a better picture of what the risks are. It’s important to understand how it affects your financial future.
How To Check Your Credit Score
There are a number of websites you can check your credit score – in some cases, for free. Once you’ve signed up and verified your identity, you’ll gain access to your credit report including your credit score. In Australia, there are three main credit reporting bodies: Equifax, Experian and Illion.
Ways You Can Improve Your Credit Score
If your credit score has taken a few dents and is not looking the best, it’s not the end of the world. It can be repaired and improved upon over time.
Let’s look at a few ways you can improve your credit score.
Everything you pay each week or month can have an effect on your credit rating, so one way to start improving your credit score is to make certain you always pay your bills on time, no matter what they are. If you struggle to remember to make payments, then it’s a good idea to set up direct debits so you don’t have to think about it.
Another way you can work towards improving your credit score is to pay more than the minimum payment on credit cards, personal loans, mortgage repayments and so forth. Paying on time is always a good thing, but it’s even better if you pay more than the minimum amount and on time. To take things a step further, if you can completely pay out a loan or pay off the balance of your credit card, then that’s an even better scenario.
If you have some credit cards, try reducing the credit limit, and if you do manage to pay out the balance on one, have it cancelled, as your credit limit still represents debt, even if you don’t currently have a balance.
Don’t apply for too many credit cards or loans all at once, as this will be indicated in your credit report and can adversely affect your credit rating.
Another thing you’ll want to do from time to time and take a look at your credit report and credit score to determine if everything is accurate. Sometimes, you may have paid a bill, but for some reason, it has been recorded on your credit report as being unpaid. If this is the case, you’ll want to have your report rectified ASAP.
Listed above are just a few ways you can start improving a damaged credit score. So long as you keep paying your commitments and on time, don’t have too much outstanding credit and keep tabs on your credit report, your score will get better in time.
Will My Credit Score Affect My Personal Loan Application?
All responsible lenders in Australia will look at your credit score when reviewing a Personal Loan application to ensure you’re able to pay it back comfortably. However, every lender has a different lending criteria, and some may also look at other various factors when reviewing your application, such as employment history and income.
Disclaimer: Please note this content is of general nature only and does not take into account your personal objectives, financial situations or needs. For advice tailored to your financial situation, it is advised that you seek guidance from an accountant or financial advisor. The information contained in this article is correct at the date of publication.