5 ways to improve your credit score :

Your credit score is a number that represents your financial history, and is used by lenders to determine how much risk you pose as a borrower . Your score is calculated from the information contained in your credit report, such as the number of debts you are responsible for, whether you’ve been making timely repayments or not, your credit card limits, etc.

Depending on the credit reporting agency, your credit score may sit between zero to 1,200, as each of the three major agencies use a different range when categorising consumers’ scores. However, your individual score will usually be similar  across all three reporting agencies, as the information used to derive the score is the same. Even though what constitutes a good credit score may differ according to the reporting agency, generally a score above 600 is considered good, and 750+ is considered very good.

Having a good credit score means lenders are more likely to approve your application for credit than someone with an average or poor credit score. Lenders also tend to reserve their most competitive rates for borrowers with a high credit score. So, you’re more likely to qualify for a loan with a lower interest rate and favourable terms when applying with a high credit score.   

On the other hand, a poor credit score could make it difficult for you to qualify for a loan or any other credit product, or you might be charged a higher interest rate or fees. If you’re planning to apply for a home loan or any other credit product in the near future, it’s worth checking your credit score online to see where you stand. There are plenty of websites that allow you to check your credit score for free. If you do find that your credit score is lower than you need it to be, don’t worry. We’ve put together some simple tips that can help you improve your score over time.

How to fix a low credit score?

There are two steps to fixing a low credit score. The first is getting a copy of your credit report (preferably from all three credit agencies) and checking it for errors. Some of the mistakes that might creep into your credit report are:

• Duplicate listings
• Incorrect amounts of outstanding debts
• Credit applications not made by you
• Repayments made by you that were not recorded

If you find information that has been listed incorrectly, you can report it to the relevant credit agency for investigation. Once the error is confirmed, it will be corrected on your report and automatically reflected in your credit score. 

Try not to fall for credit repair agencies that charge you for repairing your credit, as they can’t do much more than spotting errors on your file, which you can easily do on your own.

Apart from correcting any errors, the other way to improve your credit score is through positive changes in your financial behaviour.  

1. Pay down your debts diligently 

Under the Comprehensive Credit Reporting scheme, both positive and negative behaviours impact your credit score. So, paying off your debts promptly, including your mortgage and credit cards, can help improve your credit score by creating a record of consistent and timely repayments.

2. Pay your bills on time

Paying your telephone and utility bills on time can help improve your credit. A late payment of more than $150 may be listed on your report as a default when overdue for 60 days or more. Such defaults can stay on your file for up to 5 years, and you cannot have them removed by paying your bill late. It’s worth budgeting for regular expenses and setting up an auto-debit from your account to make sure your bills are paid on time.

If you move house, remember to update all relevant parties, including your local post office, utility providers and lenders, with your new details to make sure you receive your bills on time. You might also want to opt to receive your bills by email to avoid confusion and to save paper.

3. Lower your credit card limits

While it can be good to have a higher credit limit in case of emergency expenses, in some cases you might find that it actually ends up hurting your credit score. This is because your credit report doesn’t reflect the amount you spend on your card. Instead, it’s your credit card limit that’s shown on your report and used to calculate your credit score. 

So, if your combined credit card limit is $10,000, that’s the amount that will show on your file, irrespective of whether you only spend $1,000 of that. Lowering your credit card limit reduces the amount of active credit on your file, which may increase your borrowing capacity and boost your credit score. 

4. Use your credit cards wisely

Not having a credit history will also lead to a low credit score. One of the simplest ways of building credit is by using a credit card, but you need to be aware of the costs and risks involved. While credit cards offer an easy method to pay for your day-to-day expenses, they also make it easier to fall into a debt trap, making it easier to spend more than what you earn. Therefore, it’s important to budget and set limits on your credit card spending to make sure you’re able to pay your bill in full each month to avoid penalties and high interest charges. 

5. Avoid making multiple applications for credit

Whether you’re searching for a home loan, personal loan, or a new credit card, shopping around for the best deals on the market can help you boost your savings. But while it’s okay to compare deals online, making multiple applications for credit too close to each other can impact your credit score negatively. That’s because a credit provider pulls out your credit report each time you make an application for new credit. Such inquiries are listed on your credit report. If a lender sees multiple inquiries on your report in a short duration, they may suspect some kind of financial trouble. Such inquiries reduce your credit score slightly, but multiple inquiries can add up to have a more significant impact. 

If you’re looking for a home loan, you can always speak with a mortgage broker to narrow down your search to lenders most likely to approve your application. A broker will also help you find a loan that’s competitive and suitable for your requirements to help you get the most out of your mortgage.