Understanding how your credit score is calculated is important. If you already enjoy a good credit score, the challenge is how to ensure you keep it healthy to allow you to take out credit cards and loans with confidence. A good credit score also helps you access the most competitive interest rates on the market.
However, if your credit score could benefit from some improvement, here are some savvy tips on how to improve your credit score to get you to your magical mark.
Check Your Credit Score
First things first, you can access a free credit score from several online providers. You may find the results vary depending on which credit reporting agency you approach. For an accurate picture of your credit standing, check with more than one agency. Always remember your credit score may change from month to month in line with changes to your financial circumstances.
Check your credit rating for accuracy. If you discover errors in their information, provide that credit reporting agency with corrected information. You should also check with the other agencies to ensure they haven’t duplicated the erroneous information. Some credit reporting agencies provide an email or telephone alerting system to contact you if there any material changes to your credit rating.
Smart Tips For Improving Your Credit Score
- Build A Credit History
The concept behind a credit score is to prove lenders with an informed picture of your ability to repay your debts as and when they fall due together with your payment reliability. Start strategically by having utilities, mobile phone plans and Internet connections in your name. Over time, this will ensure you build a good reputation over time.
2. Strategically Manage Your Debt-To-Credit Ratio
Credit scores factor in your debt-to-credit ratio. A $500 clear balance on a credit card with a $2,500 limit is a 20 percent debt to credit ratio. The lower your debt-to-credit ratio the better it is for your credit rating.
Maintaining a low balance on your credit cards or increasing the limit to lower the effective ratio assists in improving your overall credit score.
3. Repay Loans And Credit Cards On Time
As with your bill payments, ensure all your credit card and loan repayments are made on time. Whenever you apply for credit or a loan ensure your repayment options match your ability to pay to avoid missing payments. One option is to extend your loan repayments over a longer timeframe. While you may pay more in interest, your minimum payments will be less.
4. Pay Your Bills On Time
As your credit score is a dynamic rating, it could potentially change monthly. An important factor in managing your credit score is ensuring you diligently pay your bills on time.
A missed payment stays on your record for five years even if it is only overdue for 60 days. Get into the habit of paying your bills when you receive them rather than leaving them to pay them when they are closer to the due date.
Most credit providers offer the option of a direct debit for bill payment. You may even receive a discount if you take advantage of this option. Direct debits are a great way to ensure you never forget to make a due payment.
If you ever find yourself in a situation where you are unable to make a payment when it falls due, contact your provider before the bill falls due and negotiate an extension or make a partial payment.
These instances are where having an Emergency Fund in place to cover unexpected expenses can be a credit rating lifesaver.
5. Update Your Credit Details
When you change your address be sure to advise your credit providers of your new details. Have your mail redirected to your new address for a minimum of six months to ensure you have advised all the relevant providers.
Similarly, when your credit card expires and you are issued with a replacement card don’t omit to update your credit providers with your new card details. Keep a list of automatic payments attached to a card to help you keep track of your commitments and avoid missing automatic deductions.
6. Limit Your Credit Applications
Every time you apply for a credit card or loan, it appears on your credit score and can adversely impact your credit score. This includes applying for balance transfers, car consolidation and loans.
7. Understanding Your Credit Score
The following outlines a typical scoring structure. All scores are based on historical data and reflect the degree of risk associated with an individuals reliability to repay a debt when it falls due. This model is based on the Equifax scoring model:
Below Average (Bottom 20%): Scores in this range indicate an adverse event including a default, personal insolvency or court judgment is more likely to be flagged on a credit file over the coming 12 months compared to the average credit active Australian population.
Average (21% to 40%): Again, this score indicates a default, court judgment, or personal insolvency is likely to be reflected on a credit file during the coming 12 months compared to the average credit active Australian population.
Good (41% to 60%): This score indicates the odds of no adverse events occurring on an individual’s credit file over the next 12 months are better than the average than the odds of that occurring amongst the average population.
Very Good (61% to 80%): the odds of no adverse events occurring on an individual’s credit file in the next 12 months are more than twice as likely than the odds of that occurring amongst the average population.
Excellent (81% to 100%) The odds of no adverse events occurring on an individual’s credit file in the coming 12 months are more than five times better than the odds of that occurring amongst the average population.
We live in a consumer credit-driven world. Most of us rely on having access to credit to buy a car, a home, or eventually open your own business. A good credit score is the key to gaining access to cheaper, more affordable finance. If you have a good credit score, the challenge is how to ensure you keep it healthy. Following our smart tips will help you improve your credit score and a good credit score will help you gain access the most competitive interest rates on the market.