How To Improve Credit Score In Australia: A Complete Guide

A lender's credit score is the first thing to decide whether to lend money. This score represents the overall credit history of a loan applicant.

Checking the score helps lenders convince themselves that you are in a good financial position before approving your borrowing request. A higher credit score indicates a better chance of getting a credit or loan approval and vice versa.

Should your credit history be better? Don't worry. You have landed at the right place. This blog explains a credit score, what it is, why it is vital, how to calculate it, how long it takes to increase the score, and ways to check and rectify errors in a credit report.

Also, you will learn tips on improving and increasing your credit score in Australia to become more appealing to lenders when applying for a credit or loan.

1. What Is Credit?

Credit is a contractual agreement where a person borrows money and agrees to pay it later with interest to the lender. The most common types of credit include:

• Personal loan

• Home loan

• Credit card

• Payday loan

• Interest-free loan

• "Buy Now, Pay Later" service 

• Buying household, electronic or other items on loan 

2. What Is A Credit Score?

Each time you take out credit, this information is added to your credit history and impacts your credit score. Lenders use this score to decide how safe it is to lend credit or money to you.

A credit score is a numerical number on the credit report. It is calculated based on your borrowing and repayment history and how often you have applied for credit.

A higher credit score increases your chances of getting your credit request approved. If you have a low credit score, the lender will perceive you as high risk and only approve a loan or credit at a higher interest rate.

It is vital to ensure that you are in good financial shape before applying for a loan to avoid paying extra charges.

3. What Is Credit History?

Your credit history is a record showing how you have managed your credit sources, such as credit cards and loans.

4. What Is A Credit Report?

Lenders generally ask for a credit report when deciding whether to lend credit or loan and determining the interest rate. It is a comprehensive summary that includes the following:

• Personal information

• Credit/lending history and status (payment history, account balances, credit score)

• Public records like bankruptcies

• Name of companies that have accessed the report

A credit reporting agency gathers the personal and financial data of the consumer and prepares the credit report. After applying rules to the collected information, they create a credit score.

This score is a variable number that changes with time based on how a consumer interacts with credit. Potential credit providers use this score to evaluate the creditworthiness of a loan/credit applicant.

5. What Is Creditworthiness, And How Is It Determined?

Creditworthiness refers to a company or a person who has been reliable in repaying money and has adequate funds to stay afloat when things go out of balance.

A lot of different factors determine creditworthiness, such as:
 

• Your assets and savings history

• Proof of steady and regular Income 

• Expenses 

• Debts

Creditworthiness is necessary at the time of applying for a loan/credit. To be in the good books of lenders, you must ensure a first-rate credit score. 

It increases the chances of getting the following approved:

• Any form of loans, such as a home loan, a car loan, or a personal loan

• Get a low-interest rate on a loan 

• A mortgage

• Credit card

• Utility and Phone contract

• Arrange a hire purchase agreement

• Rent a residential or business property 

• Improve your chances of accessing credit in the future

By taking care of your creditworthiness, you can achieve your financial aspirations and enhance the quality of your life.

6. How Is Your Credit Score Calculated?

In Australia, credit reporting agencies calculate credit scores. Such as Equifax (previously called Veda). The higher the score, the better your chances of approving a loan request.

Here are the most common factors that credit reporting agencies consider to arrive at a score.

• Personal details such as age, tenure of employment, and time spent at your present address

• Your past and current debt, including any issues experienced in repaying it

• Type of Credit Provider 

• Type of Credit/ loans you have taken out for personal, family, or household reasons; or to become a guarantor for someone or to purchase, refurbish, and refinance a property.

• Size of your Credit 

• Number of Credit Applications

• Your current credit cards and their current credit limit

• How often have you applied for credit over a short period? 

• Accounts you have opened or closed.

• How old is your credit history?

• Any history of bankruptcy/default judgment/ court warrant

• Defaults such as unsettled debts, clear-outs, and grave credit violations

7. How Do You Check Your Credit Score?

Your credit score is in the credit report. Credit reporting agencies such as Experian, Illion, and Equifax provide free access to your credit report. To view the credit report, you need to provide them with the following details:

• Name

• Date of birth

• Contact address

• Driver's license number.

It takes about ten days or less to receive this report by email. Alternatively, you can access it through an online credit score provider, such as Finder, Canstar, or Credit Simple. Do not choose paid services to get your credit report, as many such service providers are fraud.

8. When Should You Check Your Credit Score?

It is considered good practice to check your credit score at least once a year for errors. Many banks offer a facility to their customers to monitor their credit and get notified about changes in their scores. 

You are eligible to get your free credit report every three months. The report mentions your credit score, its fall band, and the associated rating.

9. What Credit Score Do I Need For A Credit Card In Australia?

In Australia, the credit score you require to get a credit card depends on your credit history and the type of credit card you want. Usually, the minimum credit score for credit cards is above 622. 

FICO scores are an industry standard used for 30 years worldwide. They depend on the credit profile of an individual. Lenders in Australia use FICO scores defined in the range of 300 to 800. A FICO score above 670 is considered good and improves your loan/credit approval chances.

You can obtain your FICO score from three authorised credit bureaus (Equifax, TransUnion, and Experian).

10. Steps to Improve Your Credit Score in Australia

Knowing the importance of a good credit score, let us look at ten simple ways to enhance your score and improve your financial behaviour.

Step 1: Pay Your Current Loans And Debts On Time

Instil a habit of consistent and timely payments. They are the key to building a good credit score. Also, clear off or reduce the outstanding balance to impact your credit score.

Step 2: Be Punctual In Bill Payments

Bill payment defaults are listed on your credit report and stay there for several years. One of the ways to avoid it is to schedule automatic payments to ensure you pay the bills on time.

Step 3: Think Twice Before You Apply For A New Credit

Every time you apply or enquire for new credit, it gets recorded on the credit report.

Frequently applying for credit can hint to lenders about your financial desperation or being careless with money and can eventually harm your score. So, stop applying for new credit if you can.

Step 4: Build Up Your Savings

An adequate bank balance allows you to access your money anytime to pay bills and other debts. Not only does it help your credit score, but it shows you as a reliable application to the lender.

To know how to improve your credit score with CommBank, setting a savings objective on NetBank can help you stay motivated to save.

Step 5: Use Different Types of Credit

Having no debt may make you look more creditworthy. On the contrary, measured and responsible handling of credit cards proves your debt.

Management abilities to the credit bureau and improves your credit score. Experts recommend using different types of credit, such as home loans, auto loans, personal loans, credit cards, payday loans, and mortgages. Other types of credit will help enhance your credit score.

Step 6: Get Help From Financial Counsellor

Do you find it hard to manage bills or loan repayments and are getting into more debt? You can always contact a financial counsellor or credit provider for unbiased and confidential service. 

They can help you develop a budget, negotiate with creditors, and make a financial plan to ease your job.

Step 7: Assess Your Credit Report For Errors

There is always a possibility that your credit reporting agency has recorded inaccurate or wrong information on the report. 

A single mistake can negatively affect your overall credit score. It is always a good practice to check it from time to time to identify any area to address and take corrective action.

Every individual has the right to access a free credit report copy from the Australian credit reporting bodies. With Experian, Illion, and Equifax every 12 months or within 90 days of obtaining a credit rejection.

Step 8: Have Only Credit Cards That You Can Manage

Showing a reasonable repayment and bill-paying history to credit bureaus is necessary if your goal is to establish good credit history and a high credit score. 

That’s why, if you hold multiple cards, stick only to the ones you can manage well.

Step 9: Lower The Credit Limit On Your Cards

Consider reducing the credit limits and putting a stricter limit on all credit cards. It will help you use it only to a limit you can afford to repay. 

Reducing your credit card limit will, in turn, restrict the debt you can accumulate and help enhance your credit score.

Step 10: Don’t Throw Unused Cards 

Often people discard credit cards that they no longer use. Your less-used cards can also help improve your credit score. Keeping debt-free credit cards will positively impact your overall score.

Step 11: Don’t Change Jobs And Addresses Often

Lenders are much more willing to lend money to those with a stable character and staying power. 

Jumping from one job to another or changing addresses will make you look inconsistent, unstable, and not a good candidate for the loan.

11. How To Improve Credit Score Without Credit Card?

What if you have no credit card and no loan in your name? What would be my credit history? Having a credit or loan and managing it well is one of the ways to improve your credit history.

People who do not have a credit or loan have a low credit score. They can develop a credit history by applying for a low-rate or no yearly fee credit card.

When making timely repayments, they can build a good credit score and become eligible for various credit/loan products.

12. How To Increase Credit Score Quickly?

Are you considering raising your credit score by 100 points overnight? There is no instant way to increase the credit score. Your long-term actions will help add more positive information to your report to improve your credit score.

Do not trust fake credit repair companies that assure you to instantly fix your credit history by removing negative information from the report. Instead, work on improvising your financial behaviour. 

Practice discipline and patience, and regularly track changes in your credit score to ensure you stay on track. 

To know how to improve your credit score fast, here are a bunch of actions you can start right now and follow consistently to boost your score:

• Find the reason for low credit score

• Pay your bills on time

• Avoid making late payments on mortgage or credit cards

• Pay down enormous credit soon to reduce your percentage of the credit

• Pay off any credit card debt before the due date

• Lower your credit cards limits 

• Keep only those credit cards that you can manage 

• Do not apply for new credit cards or loans

13. How To Clear My Credit History For Free In Australia?

There are instances when the credit reporting agency reports your financial information wrong in the credit report. You can fix the following errors in your credit reports for free.

• Your name, birth date, or address 

• Multiple listings of a debt 

• Listed an overdue debt for which you are having a dispute with the lender

• An account created by mistake or due to an identity theft

• Incorrect debt amount

The best way to rectify the above errors is to contact the credit reporting agency and get the incorrect listing removed. When not getting a resolution, you can contact a financial counsellor for assistance or escalate the complaint to the Australian Financial Complaints Authority for free.

14. How Long Does It Take To Improve Credit Score In Australia?

If you have reporting errors in your credit report caused by your credit provider or the credit agency. In that case, they will quickly fix it for you. 

However, it will take more time to improve your credit score if you have a low credit score because of missing loans or credit card repayments.

If the primary reason for a bad credit score is your credit utilisation, you should pay off your balances as soon as possible to improve the score.

However, suppose you have a low score because of your bad payment history. In that case, it will take many months of consistent on-time payments to see positive changes in your score.

15. What Is Credit Builder Loan In Australia?

A credit-builder loan is an easy and hassle-free way to build or rebuild a credit history. It is a small unsecured loan between the $300 and $1,000 limit. Banks and credit unions offer these loans for those with no credit, nominal credit, or bad credit.

Let us understand how it works. The loan amount is paid into a savings account accessible only when repaid in full. 

As the borrower budget well and pays back the loan over 0.5 to 2 years, their credit score improves, and he is allowed to use this credit amount in whichever way they wish.

16. How To Increase Credit Score To 800?

In Australia, credit reporting bodies like Experian calculate your credit scores. Its range is between 0 and 1000. Here are a few simple tips that can help boost your credit scores and take them to the 800 level.

• Reduce your outstanding debts to credit ratio to see a hike in your credit score 

• Lower your debt-to-income ratio. For this, you need to raise your income and reduce your repayments.

• Remove inaccuracies and negative information. You can do this by regularly checking your credit report and raising a dispute with the top three bureaus for any wrong information reported in the credit report. 

• Lower your expenditure by choosing cheaper items over expensive ones and show that you have more available credits

• Always pay your bills or mortgage on or before the due dates.

• Get authorisation on high credit scores. List your name as an authorised Member on the credit card of any of your family members who has a good score.

• Do not apply for a new credit card.

17. Conclusion

An error in your credit report or a poor credit score can adversely impact any credit or loan applications. That’s why improving your credit score should be a priority. 

A financial counsellor or trusted credit repair company can help clean your credit report and get you back in a stable financial position. 

As the credit score can’t improve overnight, the sooner you start working to enhance your credit, the quicker you notice the results.

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