5 ways to increase your credit score

When it comes to important numbers, your credit score is right up there when it comes to the impact it can have on your life. But, unlike other important numbers, your credit score is something a lot of everyday Australians may ignore until it’s too late.

“We did some research recently that showed that awareness of credit reports and how they’re used isn’t too high in Australia,” explains James Forbes, General Manager – Consumer at consumer credit reporting agency Equifax.

“We’ve been trying to do a lot of work to build that area of financial literacy among consumers and let them know the importance of getting familiar with their credit score and what it means.”

A credit score – sometimes called a credit rating – is information lenders can access to decide whether to give you a home loan, personal loan, car loan, or credit.

“Quite simply,” explains Mr Forbes, “a credit score is a summary of the credit information we hold from banks and other financial institutions about your financial behaviour as it pertains to credit.”

These are determined using personal and financial information about you and your credit history. It takes into account whether or not you’ve missed repayments on loans, if you have a proven history of being able to repay debts, and whether or not you have defaulted on payments. This information is contained within your credit report, a document unique to you and compiled over the course of your financial history.

“Basically it’s an indication of how much risk you represent to a lender,” says Mr Forbes, “and it’s not just the numbers themselves, but your behaviour. So, for example, how many credit products you’ve applied for – particularly if those applications occurred within a short time frame – will have an impact.”

“We use a series of bands at Equifax,” Mr Forbes continues. “We use a score range from 0 to 1200 to calculate your credit rating. Our credit score range is broken down according to these classifications: below average (0 to 459), average (460 to 660), good (661 to 734), very good (735 to 852), and excellent (853 to 1200).”

Mr Forbes says that your credit score doesn’t have to be perfect – far from it – but it does have to be generally good in order for most lenders to consider you.

“Different lenders are seeking to address different segments of the market,” says Mr Forbes.

“So, perhaps some premium lenders may choose to only select customers right at the top end, but there are other lenders in the market that are looking to lend to people who may or may not get a loan with a more selective lender.”

Fortunately, a credit score is not a static thing; it is possible to increase (or decrease!) the number by way of your financial behaviour.

Let’s take a look below at some ways you can improve your credit score, and increase the likelihood that you will be approved for a loan you want.

According to Mr Forbes, timely repayments are one of the best ways to positively impact your credit score over time.

“The key thing is paying your bills on time, so that your repayment history information is up to date, and there are no flags that you've missed payments,” he says.

“So, if you have a long history of being up to date with your payments, that's a really good sign, and if you're looking to improve your credit score, getting into good repayment practices and ensuring you stay up to date is really important.”

“A lot of consumers don’t realise that the amount of credit applications they make also counts towards their credit score,” says Mr Forbes, “so it’s a good idea not to go willy-nilly applying for a range of products.

“I think it's really worthwhile doing your homework before you apply, rather than casting around and making multiple applications within a short period of time, because having lots of applications is an indicator of financial stress or credit stress. If you've got people applying for lots of credit, the question is, why is that happening?”

Mr Forbes explains that multiple credit liabilities can negatively impact your credit rating, so it’s best to close accounts that are not needed.

“Close unused credit counts,” he says. “If you have a credit card or a store card you don’t use, get rid of it.”

“If you have really high credit limits that you don’t need, or that maybe you could do without, reducing those credit limits, reducing the number of accounts and certainly reducing any accounts that you don't need may contribute towards a more favourable credit score.”

Mr Forbes says he cannot overstate the importance of getting to know the ins and outs of your credit report when it comes to making sure you have the best credit score possible.

“You can go to Equifax to see your credit report,” he explains, “and from there it’s vital that you become familiar with it, what’s in it, and where you need to improve.”

Crucially, he says, there is the potential for mistakes or fraudulent loans to impact your score.

“There's been a lot of press around data breaches lately,” he explains.

“And one of the risks of these breaches is loans being taken out in your name. Those will show up on your credit report – and you may not even realise they’ve been taken out. If that's occurred, and then they haven’t been paid out, that's a bad look for you and your credit profile and your credit score, and one you could remedy. Staying up to date with your credit report is really important, which is why we really encourage people to review their credit information to ensure that it's correct and up to date. That’s how you can ensure it’s presented in the best light possible in front of potential lenders.”