How To ‘Fix’ A Low Credit Score

In Australia, a credit score is a summary of your credit report which is an analysis of your debt history. The calculations are based on a range of factors, including the type of credit products you’ve held in the last two years, your usual repayment amount and how often you make your repayments on time. In short, it’s a score that helps lenders determine your credit worthiness.

With that in mind, here are some tips to get your score as close to perfect as possible.

Michelle Singletary at The Washington Post recently talked about her perfect credit score. While America uses a different scoring system to Australia, she makes some interesting points that aren’t lost in translation.

Specifically, she notes that it doesn’t really matter if you’re a few points off perfect. Once your credit rating is considered excellent, you don’t need to work on improving your number – it won’t make any difference to the types of loans and interest rates you’re offered. You also don’t need to worry too much about credit card debt (provided you’re making and preferably exceeding your monthly repayments.)

But let’s say you’re the kind of person who thrives on smashing goals and achieving perfection – what can you do to get to the very top?

How to improve your credit score

You’re hopefully already paying all of your bills on time. You probably already have a lengthy credit history, including credit accounts that have been open for over a decade. You might have additional types of credit (mortgages, car loans) along with your credit cards, which proves that you can responsibly manage multiple types of debt.

One thing you don’t need to worry about is your credit utilisation ratio. This is your ratio of debt to your available credit — but it’s not currently factored into credit scores in Australia. Provided you make your payments on time, your credit card debt won’t affect your score.

As the Australian Securities and Investments Commission (ASIC) notes on its MoneySmart website, you can improve your credit rating relatively quickly by making a few sensible, sustained changes. These include:

• lowering your credit card limits
• consolidating multiple personal loans and/or credit cards
• limiting your applications for credit
• making your repayments on time
• paying your rent and bills on time
• paying your mortgage and other loans on time
• paying your credit card off in full each month

Additional reporting by Nicole Dieker.