How to Improve Credit Score
Believe it or not, your credit score can open financial opportunities – from getting a loan to buying a house or even getting a credit card. But for most people, the idea of improving their credit score is confusing and full of mysteries. What exactly goes into this number? How can you make it better? And are all the tips you hear about really true?
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What Exactly Is a Credit Score?
Think of your credit score as a report card for your financial health. It’s a number that tells banks, lenders, and credit card companies how good you are at managing your money. A high score means you're responsible with money, and lenders will feel more comfortable giving you loans. A low score? Well, that tells them you might not be as reliable.
In Australia, your credit score can range from 0 to 1,200. The higher, the better. Here’s a rough idea of how those numbers are classified:
low (0–459): Not great. You might struggle to get loans.
Fair (460–660): Room for improvement.
Good (661–734): You’re on the right track.
Very Good (735–852): Excellent work!
Excellent (853–1,200): Top of the class!
How Is Your Credit Score Calculated?
Your credit score is calculated by credit reporting agencies like Equifax, Experian, and illion. These companies look at your credit report—a detailed history of how you’ve managed loans, credit cards, and debts over the years.
They take into account:
How much money you owe (this includes loans, credit cards, etc.).
Your repayment history (whether you pay on time or miss payments).
How many times you’ve applied for credit (applying for too many loans or credit cards in a short period can hurt your score).
Any negative marks like defaults or bankruptcies.
This report gets updated regularly, and based on this information, a number is generated that shows your creditworthiness—a fancy way of saying how likely you are to repay borrowed money.
Myth #1: “Checking My Credit Score Will Hurt It”
Let’s bust this myth right away. Checking your credit score won’t lower it. In fact, it’s a good idea to check your score regularly to see where you stand. You can request your credit report for free once a year from agencies like Equifax.
However, what does affect your score is when lenders check it after you apply for a loan or credit card. This is called a hard enquiry, and too many of these in a short period can drop your score temporarily.
How to Improve Your Credit Score: The Real Tips
Pay Your Bills on Time
This might sound obvious, but it’s one of the most important things you can do. When you miss a bill payment—whether it’s your electricity or credit card—it can be recorded on your credit report. This can negatively impact your score. Setting up automatic payments or reminders can help you avoid this problem.
Limit New Credit Applications
Every time you apply for a new loan or credit card, a hard enquiry is made, which temporarily lowers your credit score. If you're trying to improve your score, avoid applying for too many new credit products within a short time.
Myth #2: “I Should Close Old Credit Cards to Improve My Score”
Closing old credit cards might seem like a smart move, especially if you don’t use them anymore, but it can actually hurt your credit score. Even if you’re not using the card, the length of your credit history is an important factor in your credit score. Keeping older accounts open shows lenders that you’ve successfully managed credit over a longer period of time, which reflects positively on your creditworthiness.
However, if you’re thinking about closing a card due to high fees or other concerns, be sure to weigh the impact on your overall credit profile. One option is to ask for a lower credit limit instead of closing the account entirely.
In some cases, like if you have several other active credit products, closing one credit account might not have a big impact—or closing it could even boost your score slightly. This happens when other open accounts continue reporting positively on your credit history.
What About Fixing Errors in Your Credit Report?
It’s not uncommon for credit reports to have mistakes. You might find a loan listed that you never applied for, or maybe a debt you’ve already paid off hasn’t been updated. If you see something wrong, don’t panic. Contact the credit reporting agency to dispute it. In many cases, errors are the result of simple mistakes or even identity theft.
The Australian Government’s MoneySmart website is a great resource if you need help with this process.
Building Good Financial Habits
The best way to improve your credit score is by adopting healthy financial habits. Here are a few more things you can do:
Reduce Your Debt: If you have several credit cards or loans, paying them down will help your score. Consider consolidating your debts into one loan to make it easier to manage.
Build a Savings Buffer: Life is full of surprises—some good, some not so good. Having a savings buffer gives you a safety net for emergencies, so you don’t miss payments if something unexpected comes up.
Use a Credit Monitoring Service: Some services, like Clearscore allow you to monitor your credit score regularly and alert you if something changes, such as a new inquiry or loan.
How Long Does It Take to Improve a Credit Score?
There’s no quick fix when it comes to credit scores. Depending on your situation, it can take anywhere from a few months to a few years to see a significant improvement. For example, if you’re simply paying down some debt, you might notice changes within a few months. But if you’ve had a default or bankruptcy, it may take longer to recover.
Myth #3: “I Don’t Need to Worry About My Credit Score If I’m Not Getting a Loan”
Even if you’re not planning on taking out a loan right now, it’s still a good idea to keep your credit score in check. Your score is used in more places than you might think—like when you apply for a rental property, sign up for utilities, or even get a mobile phone plan. Having a healthy credit score opens doors in the future, even if you’re not using it today.
The Bottom Line
Improving your credit score is as simple as managing your finances wisely and avoiding common mistakes. By paying your bills on time, limiting new credit applications, and keeping an eye on your credit report, you can slowly but surely increase your score. And remember, if you’ve made financial mistakes in the past, it’s never too late to turn things around. A little discipline goes a long way!
Key takeaway: Your credit score is a reflection of your financial habits, and improving it is all about consistency, responsibility, and patience. Keep an eye on your score, stay on top of your debts, and soon you’ll see that number rise.
Disclaimer
The content provided in this article is intended for general informational purposes only. It is not intended to serve as medical, financial, or professional advice. The tips and advice shared are based on general knowledge and are not tailored to the specific circumstances of any individual reader. Always seek professional advice with any questions you may have regarding your health, mental wellbeing, or financial situation.
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