When a lender is deciding whether to approve your loan application, your credit score is probably the biggest factor.
In fact, if your credit score is below the lender’s cut off, it could be an immediate ‘no’.
This is why improving your credit score is important.
A good credit score can also mean a lower interest rate and wiggle room to borrow more.
In this guide I’ll explain the factors that determine your credit score.
Plus what you can do to improve it.
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What factors affect your credit score?
To understand the best ways to improve your credit score, you need to know what actually impacts it.
It’s calculated based on various bits of information in your credit report.
Some of the information is seen as positive (increases your credit score).
And some is negative (causing your score to drop).
Here are the main factors:
Good for your credit score
- Consistently making all credit repayments on time
- Paying utility and other bills on time
- Fixing errors if they appear in your credit report
- Keeping credit limits low
- Clearing any credit defaults from your record (payments over $150 that have been overdue for at least 60 days)
Bad for your credit score
- Missing credit and bill payments (more than 14 days after the due date)
- Credit defaults
- Making lots of credit applications in a short amount of time
- Having high credit limits
- Having no information in your credit history
8 ways to improve your credit score
Now, let’s take a look at some steps you can take to make sure your credit report and score contain more positives than negatives.
If you’re looking to improve your credit score because you have no information in your credit report, you’ll need a slightly different approach. I’ve covered this further down the page.
1. Check your credit report
The first step toward fixing your credit score is knowing what's in your report.
Check your credit score now and view your credit report for free. Importantly, checking it won’t affect your credit score.
Knowing what negative factors are in your report means you can start to do something about them.
2. Fix any incorrect information
Go through your credit report and check for any incorrect items.
These could be double listings of debts, or debts that aren’t yours.
They could either be mistakes, or signs that you’re a victim of identity theft.
How can I fix an error on my credit report?
Contact the credit provider to request that the listing be removed or corrected.
If the credit provider refuses, you can request to have the listing removed by the credit reporting agency.
3. Pay off any defaults
Paying off any defaults listed on your credit report will likely also improve your score.
- Prioritise financial defaults (loan or credit card repayments).
- These are usually viewed
more seriouslyby lenders. - But also pay off any non-financial defaults (utility bills, subscriptions etc.)
4. Stop applying for credit
A declined application now will almost certainly make your credit score worse.
Even if you’re approved for a bad credit loan, taking on more credit (at a higher interest rate) could make managing your finances difficult.
Potential exceptions to this step are loans for debt consolidation and balance transfer credit cards.
But you need to be very careful with these, and ideally get some advice first…
5. Get advice
Getting advice from an expert could help you make decisions on specifics (like whether consolidating debt is a good idea for you) but also your broader finances.
You have a couple of options here:
- Speak with your credit provider: They may be able to help with options like a repayment plan.
- Financial counselling: You can call the National Debt Helpline on 1800 007 007. They offer free, independent financial counselling that could help you create a budget and even negotiate your debt.
6. Lower your credit limits
The credit limits on your credit cards (not the balances) are listed on your credit report.
Lowering your limits could help to improve your credit score.
It can also help with your overall capacity to borrow in the future, as lenders assess new credit applications based partly on your credit card limits.
7. Make your credit repayments on time
This will take time, but simply making your loan and credit card repayments on time, every time will improve your credit score.
Australia’s system of comprehensive credit reporting means some positive information like making credit card and loan repayments consistently is captured on your credit report.
(Non-financial payments, like utility bills, are only recorded if you have a default.)
8. Build good financial habits
Getting into a routine of keeping on top of your finances will likely make a difference to your credit score slowly but surely.
It will help you manage your debt, keep up with repayments and importantly avoid any future issues that could set you back.
Here are some simple steps to consider:
- Automate bill and loan repayments through your online banking so you never miss any
- Create a budget to help you manage your money
- Create an emergency fund of savings
You can see more steps in our free Take Control of Your Money program.
How long will it take for my credit score to improve?
How long it takes to improve your credit score will depend on what’s causing the issue.
Plus what actions you take to make improvements.
If you're fixing up minor details like a lender not updating a closed credit account, the improvement will be fast, according to credit reporting company Equifax.
But more serious issues, like falling victim to identity theft, could take longer to fix.
Other negative items on your credit report will automatically be removed over time (you generally can't speed this up).
Again, how long it takes for your credit score to improve depends on what the issue is.
- Payment defaults are removed from your credit report after
five years. - Bankruptcies are removed from your credit report either two years from the date your bankruptcy finishes or
five yearsafter it begins - whichever is longer. - Debt agreements are removed after
five yearsin most cases. - Court judgements are removed after
five years. - Credit enquiries are removed after
five years. - Late payments are removed after
two years.
How to improve your credit score if you have no credit history
If your credit score is low because you have no credit history, the main thing you can do is establish a credit record.
This happens for most of us naturally over time.
But you may be able to make a start by simply having some utility accounts open in your name.
Some people use a credit card as a starting point to establish their credit record.
If you plan on doing that, be sure to manage the debt carefully.
And ideally look for a card with low fees and a low interest rate.
Improving your credit score FAQ
What is the fastest way to improve my credit score?
This depends but often the fastest way to have an impact is to simply check your credit report and have any incorrect listings fixed. Lowering credit limits on credit cards may also have a relatively quick impact.
When does my credit score get updated?
Creditors report to credit agencies periodically (usually monthly), so don’t panic if your score isn’t updated immediately. The same goes for disputing inaccuracies on your credit report with a credit agency.
But if your credit score still hasn’t been updated after 30 days, you might want to raise the issue with the credit reporting agency to ensure there aren’t any other issues holding you back.
How will I know if my credit score is improving?
Probably the easiest way to keep track of how your credit score is doing is to register for free credit score monitoring. That way you'll be notified whenever your credit score is updated and if anything changes.
Written by
Loans Expert
Shaun McGowan
Reviewed by
