Is your credit rating a little lower than you’d like? Getting rejected for credit card, personal loan, home loan or even a car loan can be disheartening, so here are some tips for improving your credit rating.
Finance Circle Group is based in Melbourne and we assist our clients to secure their home loans, business loans and asset finance loans.
A bad credit score can seem like a deep hole to dig yourself out of, but the good news is that it’s not impossible to recover from a lower-than-you’d-like credit score. That being said, it will definitely require some discipline and work on your part.
How can you improve your credit score?
It’s a good idea to understand what affects a credit score, and in turn what you can do to improve your own credit rating – because you can then put this knowledge into practice. Some of the ways you can help improve your credit rating include:
1. Paying bills on time
This may seem obvious, but it is the most important – pay all of your bills on or before the due date. A record of consistent and punctual payments will help considerably towards getting a good credit rating.
This is especially important if the bill is for $150 or more, as a missed payment of that size can be recorded as a default on your credit report if it’s 30 days overdue (depending on the bill or repayment, it may be listed after 14 days of missed payment). Defaults are one of the more significant black marks that can show up on a credit report, so they’re definitely best avoided if possible.
2. Not applying for any new credit
Whether you end up being approved or not, applying for a new credit product or loan will show up on your credit report, which in turn may affect your credit score. A lender or credit reporting bureau may take a dim view of the fact that you applied for new credit despite being in a reasonably precarious credit situation to begin with, which in turn may lead to a lower credit score.
That being said, we’re talking about additional credit here – we make the point further down that applying for a credit product which will replace one of your current credit products, such as a balance transfer on a new credit card, may actually help you improve your credit score – if utilised prudently.
3. Paying off any outstanding loans and debts
Furthering the point above, you’ll be much better-situated to improve your credit score if you’re not having to stress over existing loans and debts. They can exacerbate any money issues you’re currently going through, and will also appear as a feature of your credit report until you’ve paid them off – they may even remain there after you’ve paid them off depending on how large they were and how long it took you to pay them off.
4. Keep your credit card balance low
A consistently low balance is much better for your credit score than a higher one. If you’re struggling with spending too much, then our articles on ways to save money could be extremely useful to you!
One way you could potentially reduce the size of your outstanding balance is by switching to a credit card with a lower interest rate, or even one offering 0% for a certain period of time. A balance transfer could come in handy if you decide that switching credit cards is a good strategy for you.
5. Check your debt-to-credit ratio
If you have $300 on a credit card balance, then that amount has a 15% debt-to-credit ratio on a $2,000 credit card as opposed to a 30% ratio on a $1,000 card. The lower your ratio, the better. So if you’re the kind to consistently spend the same amount on your credit card, it’s worth looking into one with a higher limit; however, don’t do this if you think it would tempt you to spend more. Of course, be sure to pay off your credit cards in full each month if you can!
6. Hold onto safe accounts
The longer a credit account is maintained without any negative reports (such as a missed payment), the more it can improve your credit rating. If you regularly do all of your spending on a credit card as opposed to doing it out of a transaction account, and do so without incurring excessive or regular debt that you can’t pay, that may be a good habit to continue. This is because it displays your ability to consistently and responsibly use a credit facility.
7. Diversify your credit
If you can demonstrate an ability to handle different types of credit at the same time, it could be an asset to your credit score. For example, a mortgage, a car loan, and a credit card would be an example of diversified credit, as long as you can meet the repayments on all three types of credit. A mix of short-term and long-term, and fixed payment and revolving credit – all maintained responsibly – would see your credit score improve. That is not, however, a suggestion to take on more debt than you need.
However, it’ll always come down to ‘your’ financial behaviours, and how responsible you are with your money. The smarter you are with your money, the better your credit report will get or the faster your credit rating will recover.
It’s not a difficult task to improve your credit rating, even if it seems all hope is lost right now. It just requires attention, responsibility, and patience on your part. Use a bit of all three and you’ll hopefully see your credit score improve.
Frequently asked questions (FAQ)
Why is a credit score important?
An Equifax score is a summary of an individual’s credit information held by Equifax and indicates how credit providers and finance/utility providers may view you when you apply for credit. A credit score is derived from the information on an individual’s credit file at a specific point in time.
A credit score is one indicator of risk. A higher credit score is considered better as it indicates a lower risk. Your credit score is important as it can be used by credit providers, such as banks and other lenders to help them decide whether to lend you money and in some cases can even impact on how much they will lend you, the terms and rate that they offer you. In recent times, some lenders have started to offer special deals on personal loans and credit cards based on credit scores.
Your credit score is important as it can provide you with a better indication of how lender may view you when you apply for credit. Credit scores may be used by credit providers, such as banks and other lenders to help them decide whether to lend you money and in some cases can even impact on how much they will lend you, the terms and rate that they offer you.
you know your score, you can take steps to improve it if needed, so you can
choose a credit provider who may reward your good behaviour with access to
better finance deals over time
Your credit score can also be used by phone companies and utility providers to help them decide whether or not to accept your application for a post-paid mobile phone, electricity, gas or water contract.
It is important to note that a credit score is only one indicator of your credit risk, that may be used by a credit provider as part of their assessment on whether or not to extend you credit. A higher credit score is considered better as it indicates lower risk. Credit providers can also use information on your credit application form, along with any other information they may have on you as an existing customer against their own lending criteria and policies.
It is important to note that the way the Equifax Score is used in practice by lenders may differ to the way it is displayed in the Equifax Credit and Identity portal. Each lender may also apply their own lending criteria and policies, and in some cases their own scores, which is why some lenders may approve your application while others will not.
Why are there different credit scores?
Different lenders and credit reporting bodies (CRBs) have different credit scores based on their own information and algorithms. A score is only as accurate as the information it is based on. A score based on minimal data could potentially lead to the wrong credit decision being made. Lenders may use one or more CRBs to help in their assessment.
As Australia’s leading credit information company, the Equifax Score is calculated using information from the most comprehensive and current credit data source in Australia . The Equifax consumer bureau has more than 16 million active consumer credit files and is widely used amongst Australian lenders.
I have a good credit score but still didn’t get a loan. Why?
A credit score is not the only piece of information a lender will look at when assessing your application for credit. The lender or credit provider may also look at whether you can afford to repay the loan based on your current income, savings and expenses and whether you have been making any current loan repayments on time.
You’ll also need to meet the lender’s internal criteria that assesses whether the lender considers you can afford to repay the loan. If you don’t meet a lender’s criteria, they may not approve the loan, no matter what your credit score is.
What impacts my Equifax Score?
Your Equifax Score is impacted by the information contained on your Equifax credit report. There are a number of different factors which could impact your Equifax Score.
The type of credit providers you’ve applied for credit with. There may be different levels of risk associated with approaching a bank, buy now pay later store finance provider, hire-purchase or a phone or utility company for credit.
The type of credit you’ve applied for. For example mortgages, credit cards, personal loans and store finance may carry different levels of risk.
The credit limit or size of the loan you’ve requested in your application. A smaller loan or credit card limit may carry a different level of risk to a larger loan.
The number of credit applications you have made. Each time you apply for credit and a credit provider obtains a copy of your report, an enquiry is added to your credit report. Applications for credit can include loans, credit cards and applications for phone and utilities contracts. Even buy now pay later retail finance can result in a credit enquiry.
The ‘shopping pattern’ of credit applications over time. The spread of activity over the credit report’s life to date can have an impact on your Equifax Score. Shopping around for credit and applying to a number of different credit providers within a short space of time may negatively impact your Equifax Score. This flags you as a greater risk than if you had infrequent credit applications with only a few credit providers. As well, a relatively new credit file with many enquiries may represent a different level of risk than an older file with only a few credit enquiries.
Directorship and proprietorship information. If you are a company director or a proprietor and this information is listed on your credit report it may impact your Equifax Score. If you are it’s important to check the individual and commercial sections of your credit report.
The age of your credit file. The date your credit report was created may impact your Equifax Score. E.g. a relatively new credit file may indicate a different level of risk than one that has been established for many years.
Personal details. Your Equifax Score takes into consideration personal details such as age, as well as, stability factors like length of employment and time at your current residential address to help assess credit risk.
Default information. Default information on your personal or business credit report such as overdue debts, serious credit infringements or clear outs may negatively impact your Equifax Score, while a lack of default information in your file may positively affect your score.
Court writs and default judgements. A court writ or default judgement on a credit report is an indicator of increased risk and may negatively impact your Equifax Score. On the other hand if you don’t have this information it would indicate a reduced level of risk.
Commercial address information. Information such as location and the length of time you have resided at your current business address is a measure of stability and may impact your Equifax Score
Does ordering my credit file impact my Equifax credit score?
No. Getting your Equifax credit report will not negatively impact your Equifax Score. In fact, it may help you improve your Equifax Score by helping you identify any errors or if your identity has been compromised.
By ordering a copy of your Equifax credit report it may alert you to information on your credit report that could be impacting your Equifax Score. For example, if there is something on your credit report that is inaccurate or credit enquiries that lead you to believe your identity may have been compromised.
If there is something incorrect on your Equifax credit report, find out how to fix it here.
If, after reviewing your Equifax credit report, you think your identity has been compromised, you should contact the relevant credit provider for more information and, if necessary, seek an investigation. You can also place a ban on your credit report. Find out more here.
Your Equifax Score is a summary of your credit information held by Equifax and indicates how finance and utility providers may view you when applying for credit. It is derived from information held on your credit report as held by Equifax when the score is requested. The Equifax Score is a number between 0-1200 and in simple terms, the higher your Equifax Score, the better your credit profile and the a lower credit risk.
What can be collected in a credit report is strictly regulated by the Privacy Act 1988 (Cth). We calculate the score using private and public information, collected from credit providers and other agencies (e.g. repayment histories, court actions relating to debit and credit, insolvency and ASIC records).
How do I get my Equifax Credit Score?
You can find out your Equifax Score here. By signing up to an annual subscription you can access your Equifax credit report and score and receive an update every year. For more frequent updates and additional features such as credit alerts, a score tracker and identity monitoring we have a range of different subscription packages.
If you’re looking for your free Equifax credit report you can get it here.
What is the difference between a credit score and a credit report?
A credit report is the detail of your credit history to date whereas a credit score is simply a number which is derived from the information on an individual’s credit file as held by the credit reporting body (CRB) when the score is requested.
Your credit score does not form part of your credit report, rather it is derived from the information available on your credit file at a specific point in time.
What is the Score Tracker from Equifax?
The Equifax Score Tracker is a tool that tracks your Equifax Score over time. Each month it charts your Equifax Score, helping you to gain insight into what is impacting your Equifax Score and how you could improve it.
When you sign up to an Equifax Premium or Equifax Ultimate annual subscription, each month we’ll generate an Equifax Score which you will receive together with a graph that charts your score. You’ll also receive information regarding what items on your Equifax credit report contributed to your Equifax Score at that point in time.
Your Equifax Score may change every time new activities, such as credit enquiries or loan defaults, are recorded in your Equifax credit file.
It’s important to note that when a credit provider applies to obtain a credit score calculated by Equifax to use or review in the process of assessing your application for credit, the credit score that the credit provider receives is calculated at the time they do their credit check on you for a credit application and may change depending on the circumstances in which you have made a credit application. The Equifax Score that you receive through an Equifax Premium or Ultimate monthly plan (or an old Equifax Plan or Premium annual subscription) is not necessarily the same credit score a credit provider would obtain from Equifax. Each lender may also apply their own lending criteria and policies, and in some cases their own scores, which is why some lenders may approve your application while others will not.
However, by monitoring your Equifax Score over time, you’ll see how your Equifax Score changes depending upon the information on your credit report, and be able to track when your score improves over time.
You’ll also have a better indication of how lenders see you based on the information on your Equifax credit report.
How often does my Equifax Score get updated?
Your Equifax Score is calculated at a point in time and will change each time new information is added to your credit report.
With an Equifax subscription that includes an Equifax Score you will receive a new Equifax Score within your portal each month. A monthly email will notify you that your new Equifax Score is available within your Equifax Credit and Identity portal.
Please note that whilst Equifax calculates your Equifax Score for you every month as part of Score Tracker, when a credit provider uses Equifax Score as part of assessing an application for credit, the score they receive is calculated at the time they do their credit enquiry and may be different to your Equifax Credit Score in the Score Tracker. The way the Equifax Score is used in practice by lenders may differ to the way it is displayed in the Equifax Credit and Identity portal. Each lender may also apply their own lending criteria and policies, and in some cases their own scores, which is why some lenders may approve your application while others will not
What do the different score bands mean?
The different Equifax Score bands help you to understand your level of risk, based on your Equifax Score, compared to the Australian credit-active population held by Equifax.
The Equifax Score bands are based on historical analysis that determines how likely an adverse event, such as a default, court judgement, personal insolvency or similar, is to be recorded on a credit report in the next 12 months. This a key determining factor in whether you are likely to be able to repay future credit.
Below average (Bottom 20%) – An adverse event is more likely to be recorded on a credit file in the next 12 months.
Average (21% – 40%) – An adverse event is as likely to be recorded on a credit file in the next 12 months.
Good (41% – 60%) – Scores in this category indicate that an adverse event is less likely to be recorded on a credit file in the next 12 months. The odds of no adverse events occurring on your credit file in the next 12 months are better than the average population odds.
Very Good (61% – 80%) – It is unlikely an adverse event is to be recorded on a credit file in the next 12 months. In other words, the odds of no adverse events occurring on your credit file in the next 12 months are more than 2 times better than the average population odds.
Excellent (81% – 100%) – An adverse event is highly unlikely to be recorded on a credit file in the next 12 months. In other words, the odds of no adverse events occurring on your credit file in the next 12 months are more than 5 times better than the average population odds.
Equifax reviews the Australian credit-active population scores regularly and the Equifax score bands are calculated to take into account population and economic changes.
It is important to note that the way the Equifax Score is used in practice by lenders may differ to the way it is displayed in the Equifax Credit and Identity portal. Each lender may also apply their own lending criteria and policies, and in some cases their own scores, which is why some lenders may approve your application while others will not. This article is general and has not taken into account your objectives, financial situation, or needs. Consider whether any advice is right for you. You may need financial advice from a qualified adviser. Consider the product disclosure statement (PDS) before making any financial decision. For more information. Information gathered from different web sites including Equifax and getcreditscore.com.au.