Happy woman riding her bike to work, checking her phone Happy woman riding her bike to work, checking her phone
Happy woman riding her bike to work, checking her phone

If your credit score is lower than you prefer, there are some ways you can bring it up to scratch.

Just as an example, you can improve your credit score by paying your bills on time and keeping your credit card balances low. To further improve your credit score, consider these five tips.

1. Build a Credit File

An essential first step in improving your credit score is to build a credit file of your own. Opening new accounts that will be reported to the major credit bureaus is essential in increasing your score.

Building a credit file from scratch can seem intimidating, but it is necessary to begin building your score. Having no credit score at all is better than having to improve a negative score.

When building a credit file, ensure that all of your accounts are in your name and that there are several active and open credit accounts. The credit accounts could include either secured credit cards or small, personal loans for a car or holiday if you are just starting to work on building your credit.

A rewards credit card with no yearly fee can also help you establish a good score. Also, consider becoming an authorised user on a family member’s credit card, as long as they responsibly use their card and pay their bills. If you are making a fresh start entirely and do not have a credit file, you will first need to get a credit report from a bureau.

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2. Pay Down All Account Balances

It is wise to pay down all account balances if you are behind on your payments. If you have a high balance on your credit cards, it can significantly hurt your credit score.

If you are close to maxing out your credit cards, your credit score can improve by 10 points or more if you pay down your account balances. If you haven’t used most of your available credit, your credit score may only improve by a few points when you pay off the remaining balance.

You can consider debt consolidation to help lower your monthly payment and improve your credit score, but you must stick to a plan to pay down your debt. High balances lead to increased credit utilisation rates, which makes it seem like you cannot be trusted with a credit card and thus can discourage lenders.

Having a few credit cards with high lines of credit and low balances is an excellent way to improve your score. Paying off the low balances when they are due will ensure that your score is on the way to the top.

3. Set Up Automatic Bill Pay

Automatic bill pay is a good option if you have the money to make payments on your credit cards but keep forgetting to complete on-time payments. Most companies are happy to set you up with automatic bill pay because it ensures your bills will be paid promptly.

Consider using our budget calculator to determine how much you can afford to pay each month.

Credit billing companies do not typically report late payments by an entire billing cycle until you are past due. Automatic bill payment helps to ensure you never forget a due date, which minimises the risk of receiving late fees or dings on your credit report.

Once the credit company reports your payment is late, your score will be negatively impacted. Automatic bill pay will ensure your credit card bill balances get paid on time, helping to improve your credit score and bad credit history.

While automatic bill pay will not immediately fix your bad credit score, it can only climb by using this tool effectively. Automatic bill pay is essentially a more simple way to make on-time payments.

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4. Limit How Often You Apply for Credit

Applying for a new credit card every so often should not impact your credit score, but it can depend on how many times you ask for credit and your current credit state.

Lenders look out for how often you apply for credit because it indicates that you are financially in trouble. New credit inquiries account for 10 percent of your credit score.

Lenders pull your credit score when they consider loaning you credit, which shows up as a hard inquiry on your credit report. Opening a new account also decreases your average age of accounts, which can also hurt your score.

A hard inquiry will stay on your report for about two years. Overall, it is wise not to apply for credit too often because it is a sign of financial issues and can leave a hard inquiry on your report.

5. Have a Mix of Loans

The ideal credit mix consists of having a blend of instalment and revolving credit. Revolving credit does not have a particular end date or a set balance. Instead, it spaces out the balance equally throughout a certain amount of time. There is a minimum payment due each month; you can choose to pay the minimum or more than the minimum amount due.

Revolving credit includes bank cards and retail cards. Instalment credit has a fixed end date, and a series of payments are due monthly. Instalment credit includes auto loans, mortgages, student loans, and personal loans.

The two types of loans that do not count toward a credit mix are title and payday loans. Lenders who provide title and payday loans do not report them to credit bureaus, so they do not count toward your credit report.

Final Thoughts

There are multiple ways you can improve your credit score. Start by creating a credit file, making on-time payments, and limiting the number of times you apply for credit. A mix of loans, including revolving and instalment credit, can also help your credit score climb to the top.

Interested in a loan? Speak to our lending specialists today on (07)3505 3099, or have us call you!

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