How to bring my credit score up

We have previoulsy looked at why creditworthiness matters. We learnt that law changes in March 2014 altered what information is collected for your credit file—and how this ‘positive’ reporting can help you.

But your credit score isn’t fixed. Here are our top 10 tips to improve it.

1. Check out your credit file to see where you stand 

Get a copy of your credit file and see if there’s an area you need to address. The credit reporting bodies we use are:

• illion (formerly trading as Dun & Bradstreet Australia), opens in new window
• Equifax (previously known as Veda), opens in new window
• Experian Australia, opens in new window

You’re entitled by law to get one free credit report every 12 months, or within 90 days of receiving a credit rejection. For a small fee you can request a report at any time.

2. Ensure your credit file is fair and accurate 

Many Australians have errors on their file. It might be identity theft, or just a simple mistake by the lender.

If there’s a mistake on your report, you’ll need to contact:

• your credit provider
• the credit reporting agency
• the office of the Privacy Commissioner – if need be.

3. Create a relationship with your bank 

If you’ve got money regularly coming in, and a bit of a savings record building up, it’s proof you’re a sensible soul (and a good risk).

4. Have a credit card 

Oddly, having no debt at all doesn’t make you more creditworthy. In fact, measured credit card use (and prompt on-time payments) is evidence of an ability to manage debt.

If you’re not good at managing a credit card, cut your credit card limit back. It’s also wise to only use it for purchases you know you can afford to repay.

5. Don’t apply for too many credit cards 

Each credit application you make is added to your file and lowers your score. Why? Because too-frequent applications can be a sign of financial desperation.

Unfortunately, the ease of online applications – and the fact some customers enter ‘trial’ submissions (to work out what the best deal is) – means many have a lot on their file.

So do your research online, but talk to lenders rather than formally applying (until you’re sure what you want).

6. Pay your credit card and loans on time 

Have a reminder system so you’re never late with your credit card bill. Even better, set up a direct debit to cover your minimum payment.

Your credit card and loan info is recorded on your report for two years.

7. Demonstrate general bill-paying reliability 

Although your credit report does not include information about your payment of utility bills (electricity, water or gas) or phone bills (home, mobile and internet), it’s important to pay these bills when they’re due.

If you don't make payment on these services, your credit provider may refer your debt to a debt collector and/or report your debt to a credit reporting agency – asking them to record the default on your credit report.

8. Use a variety of credit types 

If you’re able to successfully manage several debts – say a car loan, a credit card, a mortgage – your credit score will rise.

9. Don’t throw away a rarely used card 

Even if you’ve finished paying your credit card debts, don’t close the account. Keeping it open, with no negative reports, will impact favourably on your overall score.

10. Don’t change houses and jobs frequently 

Lenders want evidence that you’re a stable character. They want to see you have staying power – that you’re not here one day, gone the next. Put simply, they want evidence of stability so try not to change jobs and addresses too frequently.

Editorial Note: Credit Karma receives compensation from third-party advertisers, but that doesn’t affect our editors’ opinions. Our third-party advertisers don’t review, approve or endorse our editorial content. It’s accurate to the best of our knowledge when posted.

Are you trying to raise your credit scores fast?

Unfortunately, there’s no silver bullet that’ll raise your credit scores overnight. But there are a few ways you might be able to improve your credit over time if you manage your credit well.

• The truth about raising your credit scores fast
• Tips that can help raise your credit scores
• Pitfalls to avoid when working on your credit scores

The truth about raising your credit scores fast

While a lucky few may be in a situation where they can raise their credit scores quickly, the bottom line for most of us is that building credit takes time and discipline, especially if you’re trying to rebuild bad credit. That’s because your credit scores are complex and made up of several interconnected factors (more on that below).

So trust us: While some credit repair agencies may promise to raise your credit scores fast, there’s no secret that will help boost your credit scores quickly.

But if you start developing healthy habits now, you can build credit over time all by yourself.

5 factors that affect your credit scores

As we mentioned above, there are several factors that go into determining your credit scores.

1. Payment history makes up the biggest chunk of your credit scores. That’s why it’s so important to make on-time payments each month if at all possible. Late payments can haunt your credit history for up to seven years.
2. Credit usage, or credit utilization, is another important factor. This measures how much of your available credit you tap into at any given time. Experts recommend you keep this to less than 30%.
3. The length of your credit history has some impact on your credit, though not much. This factors in the ages of your oldest and newest credit card accounts, as well as the average age of all your accounts. The older your credit, the better, because it shows lenders you have more experience managing credit.
4. Your credit mix has a small impact on your credit. This looks at the types of credit you borrow. Lenders want to see that you can balance revolving accounts like credit cards with installment accounts like mortgages, student loans, auto loans and personal loans.
5. Your recent credit also has a small impact on your credit. This tracks the applications you file for things like new credit cards and personal loans with hard inquiries. The fewer, the better.

Tips that can help raise your credit scores

Because credit is so complex, building credit takes time. Depending on your individual situation, there may be ways to raise your scores quickly — like paying down all your debt in a very short span of time. But if you’re starting out with bad credit, even a drastic measure like that may not have the immediate effect you’re looking for. No matter what, the most impactful thing you can do for your credit is to create some consistent habits. Here are some tips that can help you raise your credit scores over time.

1. Check your credit reports on a regular basis to track your progress

No matter where you turn for your credit check-in — your bank, Credit Karma or one of the major consumer credit bureaus — it’s important to keep an eye on your credit. And if you find any mistakes or inaccuracies, we can help you file a dispute. If your dispute is approved by the credit bureaus, you may see the error corrected as soon as within 30 days, which can help raise your credit scores.

2. Sign up for free credit monitoring

Whether it’s with Credit Karma or someone else, keeping a close eye on your credit is essential. Signing up for credit monitoring can help alert you to important changes in your credit, so that you can check for suspicious activity. Fraudulent activity can weigh down what could be an otherwise good credit score, so it’s important to dispute any details you identify as inaccurate. If the credit bureau rules in your favor, the fraudulent activity will be removed from your credit report, which can help raise your credit scores.

3. Figure out how much money you owe

Gather all your bills and come up with a plan to pay them off. The snowball method focuses on paying off the lowest balances first, while the avalanche method focuses on paying off the balances with the highest interest rates first. If you have too many credit cards to keep track of, you could also consolidate your credit card debt into one balance transfer card to make it easier to manage your monthly payments.All three strategies could help you pay off your credit card debt more quickly, lower your credit utilization ratio and raise your credit scores. So, choose the plan that works best for you, and stick with it.

4. Set up autopay, so you never forget to make a credit card payment

This could help you develop a consistent payment history over time. It might not help you raise your credit scores fast, but it could protect your scores from declining fast, which will likely happen if you miss a payment.

5. Pay twice a month

Instead of making one big payment at the end of the month, try splitting it up into smaller payments every two weeks. This could help you sneak in a few extra payments each year and save money on interest charges. And the extra payments can help pay down your principal balance faster, lowering your account balances and credit utilization ratio, which can raise your scores.

6. Negotiate a lower interest rate

A lower rate can help you pay off your balance faster, because more of your payment can be applied to your principal balance than interest. Lower balances can mean a lower credit utilization ratio (and a lift in your scores). Learn more about how to negotiate a lower interest rate.

7. Ask for a credit limit increase

A higher credit limit is another way to help reduce your credit utilization ratio, which can help raise your credit scores. Keep in mind though that some credit issuers do a hard credit check when you request a credit limit increase, and that can cause your credit to dip. Read up on how to ask for a credit limit increase.

8. Mix it up

Your credit mix refers to the various types of accounts included in your credit reports. While it probably won’t make or break your credit scores, lenders typically like to see a mix of revolving credit accounts (i.e., credit cards) and installment loans, like mortgages, auto loans and student loans. The more you diversify the money you borrow, the better. Of course, it’s not a good idea to take out a loan you don’t need just for the sake of adding some extra color to your credit mix.

9. Become an authorized user on someone else’s account

If you’re new to credit and can’t qualify for your own credit card, becoming an authorized user on someone else’s account can be a great way to get started. But it’s a double-edged sword: If the person who owns the account has healthy credit, it can help you establish a positive credit history over the long run. On the other hand, if they miss payments or carry high credit card balances, that could also reflect poorly on you. That’s why it’s important to pick someone you trust who has a longer credit history and higher credit scores than you do, and who overall has a positive credit history.

Pitfalls to avoid when working on your credit scores

When it comes to building credit, it’s easy to get overly focused on ways to raise your credit scores fast. The truth is that building credit takes time. So take a step back and make sure your strategy doesn’t do more harm than good.

Here are a few “don’ts” to keep in mind.

• Don’t apply for a bunch of new credit cards just because you want to increase your credit utilization. Even though this might help lower your credit utilization ratio, it could also make you look like a risky borrower thanks to the new hard inquiries on your reports.
• For the same reason, don’t take out a loan just to improve your credit mix. Only apply for a new loan if you actually need it.
• Don’t carry a balance on your credit card just so you can build credit. Carrying a balance can lead to unnecessary interest charges, and it might actually hold your scores down by increasing your credit utilization ratio.
• Don’t cancel your credit card after you pay it off — unless you have a good reason to do so. Closing your credit card will hurt your length of credit history, so it’s better to leave it open, even if you’re not using it anymore. Of course, if having a card tempts you to spend more, or it comes with an expensive annual fee, you might want to rethink this conventional wisdom.

What’s next?

There are a lot of credit repair companies out there that promise to raise your credit scores fast. Be wary. Rebuilding your credit scores takes time, and you can help improve your credit by yourself.

There are a few steps you might be able to take to raise your credit scores relatively quickly, like paying off credit cards with high balances and disputing errors. You might also consider working on your credit with Credit Karma’s Credit Builder plan. But for the most part, it takes time and patience to build credit.

About the author: Tim Devaney is a personal finance writer and credit card expert at Credit Karma. He’s a longtime journalist who prides himself on being a good storyteller who can explain complex information in an easily digestible wa… Read more.

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