A high credit rating is important because it can unlock many benefits and savings for you, such as giving you access to loans and a credit card with favorable terms. Credit checks are also becoming increasingly common.
Want to think about your credit rating, but don’t know where to start? You’re not alone. Personal finance can be a confusing and stressful thing to think about.
Luckily, there is a lot of information out there to help you improve your credit score. There are many useful financial advice sites that provide invaluable guidance to anyone looking to improve their credit or maintain their existing good score. Recent events have changed the way lenders are evaluating score and lending. In fact, a recent report found significant practices in lending to consumers between banks in Australia, which is something to be aware of when considering who to apply with.
Why Does a Good Credit Score Matter?
A high credit score is important because it can provide you with:
Favorable loan terms. The higher your credit, the more likely you are to get loans with favorable terms- such as low interest rates, high dollar amounts, and even lower fees. This could make you massive savings on large loans- such as loans taken out to finance a home or a car.
Access to a better credit card. A good rating will give you access to new credit cards with low interest rates and the best rewards (like cashback offers and travel points).
Insurance discounts. Though bad credit can’t disqualify you from insurance policies, high credit scores can provide you with insurance discounts, like lower premiums on your car insurance.
Tips to Improve Your Credit Score
Pay your bills on time.
Your payment history is the biggest thing to affect your credit score, making up 35% of your FICO score. Setting up a direct debit, and ensuring you have sufficient funds in your account, can help to improve your credit report. If you’re unable to meet payments, you should alert the payee. In the case of student loans, an alternative payment plan can be arranged, with adjustments to help you meet payments.
Try to pay off debts.
The amount of your credit that you’re using is shown as your credit utilization rate. Experts recommend you use no more than 30% of your credit limit to prevent it from impacting your rating significantly.
Avoid new Hard inquiries.
To increase your rating, it may be a good idea to delay applying for new credit if you can. A hard inquiry- when a lender checks your credit- will appear on your credit reports. These hard inquiries make up 10% of your FICO score.
A soft inquiry (when you check your own credit, or when a card issuer checks it for a product approval) won’t affect your score. Credit scoring models can also distinguish these inquiries from lots of loans been taken out at once, for example, so shopping around for a single mortgage shouldn’t have a significant effect.
Boost your credit.
You can also strengthen your score using your existing history, with tools such as Experian Boost, which adds your positive payments (such as utility and phone payments from your other credit accounts) to your credit report. Since your score is determined by the length of credit history (ie. the number of financial transactions you’ve made), this can give it a big boost.