Understanding your credit score and how to improve it in five easy steps.
Your credit score is one of the most critical numbers in your financial life. Whether you’re looking to apply for a loan, buy a home, or even get a new phone plan, your credit score can make or break your chances.
But many people don’t understand what their credit score means or how to improve it. Here’s what you need to know to take control of your score and make it work in your favour.
What is a Credit Score?
In simple terms, a credit score is a numerical representation of your creditworthiness. Lenders use it to assess how risky it is to lend money to you. The higher your score, the more trustworthy you appear to creditors, which usually means better terms on loans, such as lower interest rates.
In Australia, your credit score typically ranges from 0 to 1,200. The higher your score, the more likely you are to be seen as a low-risk borrower. Different credit bureaus, like Equifax, calculate your score based on factors such as:
- Your repayment history
- How much credit you have available
- How often you apply for credit
- The types of credit you use
According to Equifax, a good credit score is usually between 622 and 725, while anything above 833 is considered excellent.
How to Check Your Credit Score
You can easily check your credit score for free online. One of the main credit reporting agencies in Australia is Equifax, and you can request a copy of your credit report from them once a year without charge. Other free services, such as Finder and Credit Simple, also offer credit score checks, so it’s easy to stay on top of things.
When you access your credit report, you’ll see more than just your score. You’ll also find details about your credit history, including any loans, credit cards, or defaults in your name. This report gives a comprehensive overview of your financial behaviour and is what lenders will use to decide if they should approve your application.
How to Improve Your Credit Score
If you find that your score isn’t as high as you’d like it to be, don’t panic! There are several things you can do to improve it:
- Pay Bills on Time
This might seem obvious, but it’s the most important step. Late payments can have a significant negative impact on your score, so make sure to pay your credit card, mortgage, and utility bills before their due dates. - Limit Credit Applications
Each time you apply for credit, it’s recorded on your credit report. Multiple applications in a short period can lower your score. Only apply when necessary. - Reduce Your Credit Card Limit
Lenders look at how much credit you have available, even if you’re not using it. Reducing your limit can boost your credit score. - Check Your Credit Report Regularly
Mistakes can happen, and incorrect listings could drag down your score. If you find an error, contact Equifax or the relevant credit provider to have it corrected. - Pay Down Debt
Reducing the amount you owe on credit cards and loans will help improve your score. Aim to pay off your balances, and avoid maxing out your credit limits.
As the cost-of-living crisis continues to strain many Australians, learn these 5 Essential Tips to Help Australians Manage their Personal Finances. And as you enter your silver years, here is How to Avoid the Biggest Money Regrets in Your 50s.
