We all know your credit score is important. And we all want a great one, but even your most financially savvy friends won’t know how to help your credit score beyond some vague advice about paying credit cards on time.
In Australia, credit scoring is used to determine the creditworthiness of a person, which can affect everything from loan approvals to setting the credit limit on retail store cards. A credit score is primarily based on a credit report, typically sourced from credit bureaus such as Dun & Bradstreet and Veda.
The system relies on negative credit reporting, such as adverse listings, indicating a default. However, you can also lose points for simply making a lot of credit card or business loan applications. Here’s what you need to know about your credit score.
1. Look at Your Credit File
First things first. Request a copy of your credit report. Your credit report contains all your credit information. It can be obtained from most credit reporting agencies.
2. Fix Any Mistakes
30% of Australians have a mistake on their credit file. Your credit file may have an erroneous default, court writ or judgement listed on it. These can all hurt your credit score, so it’s important to look through your report carefully. Request the credit agency corrects any mistakes and you could see an improvement in your credit score.
3. Don't Be Debtless
Too much debt is obviously a bad thing, but so too is no debt at all. Having no credit history means there is nothing to calculate your credit score so lenders assume a high risk until they can see otherwise. A credit card is easier to obtain than a loan, so use this avenue to build up a positive credit score by making repayments on time. Once you have at least a small credit history, you can start taking out higher credit amounts and continue building your score.
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4. Minimise New Credit Enquiries
Only apply for credit when building credit or if you need the funds. Turn down promotional and point-of-purchase credit card offers. If you have too many of these cards, they will negatively affect your credit rating. The same goes when applying for loans – don’t commit Credit Kamikaze! Shopping around for different loans and continuously getting credit checks takes a toll on your credit score too.
5. Manage Your Payments
You’ve got 30 days after the due date of your bill before the lender can report you to the credit bureaus as being late. That means if your payment is due on the 15th and you pay it on the 20th the late payment can’t be reported to the credit bureaus. If the payment reaches 60 days past the due date, it’ll likely reflect on your credit report accordingly. Try planning your payments ahead of time by adding a repeating reminder in your calendar and try to stay on top of your cash flow management.
6. Obtain a Credit Report Every 12 Months
Request a credit report once a year and take a look through it to ensure there are no errors on your credit file. Sometimes human error means the wrong person gets the bad credit file entry or adverse listings are entered incorrectly or unlawfully. This is a good way to ensure your credit score is accurate and check whether or not you need to make changes to your finances over the next year to bolster your credit rating.