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Reviewing your credit score

If you’re on the path of improving your financial habits, then a great place to start is reviewing your credit score.  Your credit score is a number that helps lenders decide whether they will lend you money. The higher your score the better, as this gives lenders more confidence that you will be able to repay your loan.

Your credit score is something you should be taking the time to both improve and maintain. Improving your credit score takes time and you need to be consistent but there are a few things you can start doing today.

Pay off any debt

The first place to start when improving your credit score is to pay off any current debt as soon as you can. If you don’t have the money to pay off your debt in one hit, make decent contributions towards it each pay-day. You might have to go forgo your weekly brunches or your online shopping for a while but the quicker you pay it off, the quicker it will be off your records.

Pay your bills on time

The main reason lenders check your credit score is to see how reliable you are at paying your bills, and in turn how reliable you might be at paying off a loan. Paying your bills late will negatively affect your credit score. Bills can include your credit card, utilities and even Afterpay and Zip Pay. So remember, that occasional $10 late fee isn’t the only consequence of paying your bills late.

One way to make sure you stay on top of your bills is to set up Automatic Payments. Start by reviewing your last few bank statements and making note of all your ongoing expenses.  From there, set up payments to automatically come out of your account each month on their due date so you don’t risk forgetting whilst also taking some of the stress out of bill paying.

Keep your balance low

It can be easy to rely on your credit card for all your purchases, especially when they might connect to rewards such as frequent flyer points. While cheap flights are a nice incentive to spend, the more you pay for on your credit card the higher your credit utilisation ratio is. This ratio calculates your credit card balance by your credit limit. The higher this percentage is the lower your credit score will be. For example, if you have spent $2000 and have a credit limit of $10,000, your credit utilisation ratio is 20%.

Using your credit card only when necessary is a great way to keep your balance low and stops you from making purchases you don’t actually need. Another option is to pay off your credit card twice a month. This obviously involves more effort but if you set up automatic payments this will reduce the hassle and you can keep your balance low throughout the month.

Check your report

Check your credit report to make sure there are no errors.  If you do find errors, you can dispute them and have them cleared from your records. Your report will also tell you what factors are affecting your score which you can continue to recover. There are three main credit reporting bodies around Australia who are entitled to give you one free credit report per year. To find out more about credit reporting and how you can check your credit report, refer to the Australian Retail Credit Association website, CreditSmart.

Be patient

Paying off debt won’t improve your credit score immediately but overtime it eventually will. The same goes for late payments and other credit information. Work towards keeping your balances low and making payments on time and eventually the good will outweigh the bad, both for your credit score and your general financial health.

For more information on credit scores visit moneysmart.gov.au.

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