How to create a good credit score and history
Your credit score is based on your latest personal details and financial information, including your credit history – in other words, the amount of credit you have previously applied for, the outcome of those applications, whether you made payments on time, the outstanding amounts, and any adverse debt-related activities against you.
To build a good credit history, you need to follow certain principles when it comes to using credit responsibly, as follows:
• Only borrow what you can pay back – show lenders that you know how to avoid excessive debt and can borrow (and repay) responsibly.
• Always pay your debt on time, whether a loan or credit card – this shows you can manage your debt and pay your bills in a timely fashion.
• Pay your credit card balances in full every month – lenders can see that you’re able to pay your bills without accruing substantial debt.
• If you can’t pay the balance of your cards, pay more than the minimum each month – try to keep your cards below 30 percent of their credit limit.
Factors that could affect your credit history
Your credit history and score can change over time based on your financial habits – it can increase or decrease depending on the information held in your credit report. Some of the factors that impact on your credit history and score include:
• Applying for new credit cards or loans (applying for too many can negatively impact on your history) and reapplying for credit after being refused.
• Changes to credit limits on existing credit cards or loans.
• Making late repayments to a loan or credit card – or simply not paying at all.
• Paying off a loan or credit card and then closing them.
• Updates to your information provided by a lender or creditor.
• Any adverse judgements against you, such as bankruptcies or court judgements.
• Any errors in your credit report, including identity inaccuracies.
Top tips to fix your current credit history
If you’ve ever applied for credit, there’s a good chance you have an existing credit report and accompanying credit history. It’s therefore key to check your credit report as often as you can to ensure the information is accurate and that your report reflects the credit you’ve applied for in the past. Contact details for the main credit reporting agencies can be found here: https://www.moneysmart.gov.au/tools-and-resources/publications/factsheet-your-credit-report.
Other ways to improve your credit history and boost your overall credit score include:
• Reducing credit card limits and cutting back on applications for new credit.
• Paying your mortgage or rent, plus other bills, on time each month.
• Consolidating your loans and credit cards to reduce the credit you have.
• Paying your credit card off in full each month.
• Keeping unused accounts with a zero balance and good track record open.
By looking at your current financial situation and taking steps to improve it, your credit history will change over time and your credit score should improve – lenders will then reward your good credit history.
About the author
Russell Ward is a professional business writer who has been published in The Huffington Post, The Telegraph, CEO Magazine, Global Living, Mamamia and Thought Catalog.
Please note that this article is not financial product advice and does not take into account any person’s individual objectives, financial circumstances or needs.