If you know a thing or two about credit scores, then you’ll likely be aware that it’s typically only the borrowers with the top credit scores who are offered the most competitive credit products on the market.
Your credit score provides lenders with an insight into your credit behaviour, allowing them to determine your creditworthiness. If you have a top credit score, lenders tend to see you as less of a risk than a borrower with a subpar credit score and may, in turn, reward you with lower interest rates.
So, how do you get a top credit score?
Prior to the introduction of comprehensive credit reporting, only negative credit events, such as late payments or defaults, were recorded on your credit history. This typically made it difficult for borrowers to improve their score after it’d taken a hit.
Now, with positive events also contributing to your credit score, you have the opportunity to build it back up after a negative event by demonstrating consistently positive behaviours over time.
Here are some of the things you can do to positively affect your credit score and get it up to a level of excellence.
1. Build your credit history
If, like many of us, you grew up being told to “never get a credit card” or “always live within your means” then this one might seem counterintuitive at first. But the thing is, if you’ve never had credit, there will be no information to determine your credit score, and lenders won’t be able to evaluate your creditworthiness.
That’s not to say you should take out a credit card and start spending on unnecessary purchases. Responsibly using a credit card and paying it off in full each month can allow you to prove to lenders that you are a reliable borrower while keeping your debts to an absolute minimum.
Credit cards will typically have an interest free period on purchases each billing cycle, so as long as you pay off the balance before the specified period ends, you shouldn’t be charged any interest at all. Consider making a comprehensive credit card comparison and check what fees you may be charged to find an option that works for you.
2. Never miss a payment
We’re talking top credit scores here, and if you’re serious about it, you’ll need to make sure all of your payments are made on time. Late payments are recorded on your credit history and will remain on there for a prescribed amount of time, affecting your credit score.
Some of the things you can do to help ensure you don’t miss a payment include the following:
- Set reminders – Consider setting up a recurring reminder on your phone or any other planner you may use to alert you when your next credit card bill or loan payment is due.
- Make it automatic – Setting up a direct debit through your online banking platform means you shouldn’t even have to think about when your next payment is due. However, be sure to link it to an account that you can be certain will always have enough funds to cover the payment, as a bounced payment can count as a missed payment on your credit file.
- Update personal details – If you move house or change your phone number or email address, it’s important to inform your credit providers. That way you won’t risk not receiving your bills and accidentally miss a payment as a result. Ideally, you’ll have already set up reminders for when bills are due, but it’s better to be safe than sorry.
- Don’t overborrow – Sometimes the reason borrowers might miss a payment isn’t because they simply forgot. Overborrowing can cause financial strain and lead to missed payments because the borrower doesn’t have the funds to cover them. It’s important to always consider your budget before applying for credit and remember that you can access free financial counselling from the National Debt Helpline if need be.
3. Pay off your credit card in full every month
Paying off your credit card balance in full each month can positively impact your credit score and demonstrate to lenders that you are a responsible borrower.
It can also allow you to have control over your debts, limit your risk of falling into a debt spiral, and minimise the amount you pay in interest charges.
4. Hold onto long term credit
Hanging onto a credit card for an extended period of time can potentially be beneficial to your credit score. This is because it allows lenders to see your credit behaviour in the long term.
Of course, this is dependent on your ability to make your repayments on time and regularly bring the balance back down to zero.
If you have a credit card that you’d like to keep but the credit limit is higher than you need it to be, you could consider submitting a request to your lender to reduce the limit instead of cancelling it altogether.
5. Check your eligibility before applying for credit
Doing your due diligence before you apply for any kind of credit can limit your risk of having your application rejected.
Applications for credit are recorded on your credit file, so if you apply for another product soon after being rejected for one, this can suggest to lenders that you may be desperate for credit, as well as negatively impacting on your credit score.
To help minimise this risk altogether, ensure you meet the credit provider’s eligibility criteria before submitting an application.