Whether the new year brings about plans to buy your first home, take out a new car loan or simply work on your overall financial health, boosting your credit score may be the perfect place to start.
An excellent credit score will typically give you access to the most competitive financial products, saving you money in the long term. So, even if you don’t have immediate plans to take out a loan or a new credit card, ensuring your credit score is in tip-top shape will put you in the best position should an unexpected need arise.
If you think your credit history might have room for improvement, these three simple tips could help you get it moving in the right direction.
1. Check your credit score (and dispute any discrepancies)
First thing’s first, if you’re going to work on improving your credit score, you’ll need to know what it is. Plus, it’s a good idea to check your credit history regularly at each of the three Australian credit reporting bureaus to ensure there haven’t been any inaccuracies recorded.
All three credit reporting bureaus – Equifax, Experian, and Illion – are legally required to give you free access to your credit report once every twelve months, so there should be nothing holding you back.
Once you receive them, if you do find any discrepancies (such as an on-time payment misreported as being late), it’s important that you contact the respective credit bureau immediately to correct the error. Failing to regularly check your credit history and dispute discrepancies could mean missing out on competitive credit products that you might technically otherwise be eligible for.
2. Set up automatic transfers or reminders
This one is simple, would likely only take you a few minutes to implement, yet could help you avoid many an unintentional missed payment. Late or missed payments are detrimental to the health of your credit score, particularly if they become a regular occurrence.
There are a few ways you could go about preventing missed payments on your credit card or loan, including the following:
Set a reminder on your phone – When your credit card bill comes in, you might think making a mental note to pay it before the due date is good enough. But if you’re someone who has experienced that sinking feeling when realising you’ve missed the deadline by a day or two, you’ll know how easy it is for your memory to fail you. One way to avoid missing the due date is to set a reminder on your phone – either as a recurring alert, or as soon as you get the bill each month.
Set up a direct debit with the lender – Depending on whether it’s a credit card or loan payment, many lenders will offer you the option to set up a direct debit and have your repayments automatically drawn from your elected bank account each month. This is arguably the easiest option, as you technically won’t have to do anything once it’s set up. Except, of course, make sure there’s enough money in the account to cover the debits.
Set up a direct deposit from your bank account – This is similar to setting up a direct debit with your lender, except you’re the one in control. Most banks will allow you to set up a direct deposit of a specified amount from your account into a nominated account, to occur on a particular day of the month.
3. Consider reducing unused credit limits on your credit cards
If you’ve got a credit card with a limit that’s well over what you require and you find yourself regularly tempted to use it, it may be worth considering reducing it. This will help to prevent you from building up unnecessary debt that may become increasingly difficult to pay off, risking harm to your credit score.
Reducing your credit limit can also help your debt-to-income ratio. Even though the unused credit isn’t technically a debt, lenders will still view it as one as you could theoretically use it at any moment.
If, however, you are sensible with your spending and you don’t find yourself tempted to take advantage of excess credit, you might actually be better off retaining it. This is because credit scores can take into account credit-to-balance (or credit utilisation) ratios, meaning if you have a higher credit limit with a lower balance, any regularly make timely repayments, it can demonstrate positive and responsible credit behaviour.
Being proactive and taking control of your credit score is key to improving your financial wellbeing and will stand you in good stead for the year ahead.
