29 Nov 2018
In this article we will offer you three of our top tips for improving your credit score, but first, let's look at what a credit score is, why it's important and how you access your credit score.
So, what is a credit score?
A credit score helps lenders determine your financial credibility. It may affect their decision to lend you money, how much to lend you and the interest rate they will charge you. Your credit score is calculated from a review of your credit file, which is formulated from other times you have borrowed and repaid loans. Things that build your credit file or credit report can be current and previous accounts held, home loans, personal loans and credit cards.
Why is my credit score important?
Lenders look at your credit score and credit report to assess your reliability as a borrower. If your score is low they may come to the conclusion that lending you money would be a risk. But, if your score is high they would perceive you as financially reliable. This could affect if they lend you money, the amount they'll lend you and the interest they'll charge you.
How do I get a free credit score check?
Checking your credit score is a great way to gage whether you would be approved for a loan. There are numerous online sources that offer free credit scores and credit reports. One of these providers is Finder.
Top tips to improve your credit score
If your credit score has come back low, don't panic! Just follow our top tips to improve your credit score.
1. Reduce your debt
Increase the frequency and amounts of repayments on your current loans to quickly minimize your debt. While paying off your current debt will not erase it from your credit file, it does improve your credit profile and should improve your credit score over time.
2. Get on top of your repayments
Ensure your repayments are setup to be automatically withdrawn and/or have payment reminders set in place, so you don't face the risk of a late repayment. Making steady repayments on time can improve your credit score, meaning that when prospective lenders review your credit report, it offers a strong foundation for trust.
3. Speak with your lenders
If you are struggling to meet your repayments, talk to your nominated financial institutions and see if they can offer some flexibility or support to allow you to meet your repayments.
While these tips won't have an immediate effect, as you get on top of your outstanding credit and prove yourself as financially dependable over time, your credit score should gradually increase. Many eager individuals set up credit card accounts with the pure intention of building their credit score, so that they can have access to better loan terms in the future. However, despite the best of intentions, some people can inadvertently fall behind on repayments and run into debt, ultimately lowering their credit score.
Think of rebuilding your credit score as being similar to rebuilding trust in a friendship. Showing you can meet your obligations and be reliable will improve the strength of that relationship. Similarly, banks and credit unions want to know they can trust you. So, even if you stumble and miss a repayment, you can still work on meeting future repayments and rebuilding that trust.