How to improve your credit score

Updated 7 Sep 2021

Improve your credit score

Your credit score is a number that packs a powerful punch. It’s a strong indicator of your creditworthiness and is used by lenders when deciding to give you credit. If you have a low or medium credit score, don’t despair just yet. There are plenty of positive steps you can take now to give your credit score a boost.

Here are our top tips on how to improve your credit score, to not only give yourself the best chance to get approved but also to enjoy the perks that come along with having a high credit score.

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Always pay your bills on time

It’s so easy to get a bill in the mail, open it, and then think ‘I’ll get to that soon’. Meanwhile, life gets in the way and suddenly you’re flying dangerously close to the due date before you remember to make a payment.

Late or default payments have a real impact on your credit score, even if caused by innocently forgetting to pay rather than because you don’t have the funds. 

  • If you have a bill overdue by 60 days, or when the debt is more than $150, it will be visible on your credit report and will remain there for five years.
  • If you struggle to keep track of what bills are due, then setting up a direct debit or regular automatic payments can really help. 
  • If you really can’t make a payment on time, call up the lender or service provider and discuss an extension ahead of time.
  • If you are moving house be sure to redirect all of your bills. Lots of companies allow you to receive electronic bills these days as well, which can help. A change of address is a common way that normally good payers can accidentally miss a payment.
  • If you do happen to have some overdue payments recorded on your file, don’t despair. With the introduction of Comprehensive Credit Reporting, lenders will be able to see the positive data on your repayment history too. 

Monitor your credit score

You want to be on top of what is visible on your credit report to make sure it’s accurate. 

Sadly, identity fraud does occur, so monitoring your credit score on a regular basis and being alerted to any changes is beneficial.

If you spot any unusual credit applications on your report, or missed payments that you believe are incorrect, you should make every attempt to have these invalid enquiries and black marks removed.

The easiest way to monitor your credit score is with our Credit Score app. Free for iOS and Android. Details here.

Don’t make too many enquiries for credit

If you’ve been turned down for a credit card or loan, it can be tempting to apply again straight away at another financial institution. But this might hinder your chances of securing any credit at all.

A common mistake people make is to apply to multiple lenders at the same time during the research stage, so they can then pick and choose which option to go with. But more often than not this will end up backfiring on you.

This is because each time you apply for credit, these enquiries are recorded on your credit report. 

Regular applications for credit may be seen as having a lack of financial control and are a common way to see your credit score take a hit.

How do you fix this? Only apply for credit that you need. 

Do your research before you apply

This ties in with the point above. Rather than using multiple applications as a way to do research for what credit product you are after, do your research before you apply.

Be sure to check eligibility criteria before you apply. As an example, some platinum credit cards require a certain income before approval can be granted. There is no point applying if you know you don’t meet the criteria.

Pay off outstanding debts

Outstanding debts appear on your credit report until you’ve paid them off, and if you were in serious default with payments it could remain on your report for five or even seven years.

If you can show that you have been a diligent payer in the past this can help to improve your credit score.

Pay off your credit card's balance each month

Keeping your credit card balance low, or even paid off in full each month, is much better for your credit score.

Paying off your credit card each month shows you are in control of your finances. By all means, use your credit card for everyday purchases to get those points up, but couple this with a good payment history.

If you do happen to have a credit card with a high outstanding balance, it can be beneficial to switch to a credit card with a lower interest rate.

There are often 0% balance transfer deals available, which can be a good strategy to get the balance down without being charged interest.

Keep your debt to credit ratio low

Your debt to credit ratio is calculated as the total amount of debt outstanding on all your revolving credit products divided by the total amount of available credit.

For example, if you had $1,500 of debt outstanding on a credit card and $500 debt outstanding on a store card, your total debt outstanding is $2,000. If your credit card's credit limit was $8,000 and your store card's credit limit was $2,000, then your total available credit is $10,000. Therefore, 10,000 / 2,000 expressed as percentage is 20% or 1 : 5 as a ratio.

Try to keep this ratio low since a high ratio can hurt your credit score.

Your debt credit ratio can change significantly if you change your credit limit. For more details on how changing your credit limit affects your credit score, read this guide.

Diversify your credit

If you can demonstrate that you can be in control of regular and on-time payments for a range of credit options such as a home loan, a credit card, a car loan, or even a contract mobile phone plan, this can be an asset in improving your credit score.

A mix of short-term, long-term and revolving credit, when maintained responsibly, will see your credit score improve. But only take on what you need and don't spread yourself too thin financially.

Maintain credit over the long-term

The longer a credit account is kept with no missed payments the more it can improve your score.

So if you are able to do all of your regular spending on a credit card each month, and pay it off in full, this can be a good habit to continue instead of using a bank transaction account. It shows you can responsibly use a credit facility over an extended period.

As you’ve seen, there are ways you can improve your low credit score, and with a bit of due diligence you will see your score heading in the right direction in no time at all.