Three new year's resolutions that could help boost your credit score
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This article is over two years old, last updated on December 3, 2021. While RateCity makes best efforts to update every important article regularly, the information in this piece may not be as relevant as it once was. Alternatively, please consider checking recent credit score articles.
After a year (or two) of widespread uncertainty in the world, making new year’s resolutions might feel redundant for the most part. But when it comes to bettering your credit score, you may have more control than you think.
Having a healthy credit score can be pivotal in achieving your personal financial goals, particularly if your short-term plans involve significant financial commitments like taking out a mortgage to buy a house.
The reason being is that lenders take your credit score into consideration when determining whether to approve your application and what interest rate to offer you. Borrowers with good to excellent credit scores tend to have a better chance of approval and are offered more competitive rates than those with less-than-ideal ratings.
The good news is that there are things you can do to boost your credit rating if it has room for improvement. You may want to consider adding them to your list of resolutions to set yourself up for success as soon as the clock strikes 12.
1. Stick to a budget
If you have a habit of blowing your budget, or don’t have a budget to begin with, you’re not only potentially making things more difficult for yourself now, but for your future self too. Regularly reaching for your credit card to make non-essential purchases can sometimes lead to racking up a debt that no longer feels manageable.
This has the potential to negatively affect your credit score if it causes you to miss payments, as missed and/or late payments may be recorded on your credit file after a certain period of time.
Having a budget in place that you honour each month could allow you to feel more in control of your finances and help protect you from getting into a difficult financial position.
If you need a hand getting started, here are some tips that may help you improve your budgeting skills:
- Consider splitting your income into separate accounts in line with your budget. This way, you’ll know exactly how much spending money you have left each month and avoid eating into money set aside for savings and expenses or putting things on credit.
- Reduce your credit limits.A credit card can be a useful financial tool. But if you have a large credit limit and often find yourself tempted to use it, it could be worth asking your bank to reduce it to a more reasonable amount.
- Create a plan to pay down existing debts. Be sure to consider any outstanding loan or credit card balances in your monthly budget and make them a priority.
2. Make a habit out of checking your credit history
Keeping an eye on any changes to your credit score is a good place to start, but how often do you access your credit report? It’s important to carefully read through your credit report on a regular basis to ensure all your credit events are accurately represented. If you spot any discrepancies, be sure to raise the issue with the provider to get it corrected as soon as possible. Otherwise, you risk having an incorrect record negatively affect your score.
According to Moneysmart.gov.au, Australia’s three major credit reporting agencies – Equifax, Experian and illion – are required to provide you with a free copy of your credit report once per quarter, at your request. You can also access your credit score for free at any time by visiting RateCity’s credit score hub.
3. Utilise technology
One of the best ways to ease the burden of having to remember to pay certain bills on different days each month is to remove the need altogether. By automating your repayments, there’s no need to rely on your memory to meet the due dates.
Just make sure that any direct debits are coming out of an account that you’re certain will have enough money to cover them. Otherwise, you could be hit with a fee from your credit provider, banking institution or both for having insufficient funds. Plus, if a bounced direct debit causes a missed payment, it could be recorded on your file.
If you’d rather have more control over your payments, you could simply set a recurring calendar reminder to nudge you when payments are due.
And while you’re at it, here are some other ways you could use technology to fine tune your finances:
- Set up a quarterly reminder to check your credit file.
- Download a budgeting app to make budgeting simpler.
- Use a digital goal tracker to help you work towards your finance goals.
This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.
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