To improve your credit score, know what affects it. Things like how you pay bills, how much credit you use, and the types of credit you have matter.
Published on 30/12/2024
By Pallav Verma
Credit Cards Comparison
If you're young and starting your career in Australia, getting a good credit score is key. It shows how reliable you are with money. Credit reporting bodies like Equifax, illion, and Experian Australia use your credit report to determine your credit score. A high score means you might get loans and credit cards with better deals.
You can start building credit from 18 years old, when you can first start your credit history. A good score can help in many ways. It can make it easier to rent a place, get utilities, and even find a job. It can also affect your chances of renting a car or getting life insurance.
To improve your credit score, know what affects it. Things like how you pay bills, how much credit you use, and the types of credit you have matter. By starting good habits early and keeping an eye on your credit, you're on the right path to a solid financial future.
Improving your credit score starts with selecting the right financial tools. Learn how a credit card comparison can help you choose a card suited to your goals
Key Takeaways
Your credit score in Australia is a vital indicator of your financial health and directly impacts your ability to secure loans, credit cards, and other financial products. Credit scores in Australia typically range between 0 and 1,200, and they are grouped into five categories:
Indicates a weak credit history or significant financial issues, such as defaults or bankruptcy. Borrowers in this range may struggle to secure loans or face high interest rates.
Shows some financial difficulties in the past. Approval for credit might be possible, but it often comes with stricter terms and higher costs.
This range represents responsible financial behavior. Borrowers are more likely to secure loans with decent terms and rates.
Demonstrates strong financial reliability, making borrowers attractive to lenders. They enjoy better interest rates and flexible lending terms.
Reflects stellar financial management and creditworthiness. Borrowers in this range are more likely to access favorable terms, depending on lender policies and market conditions.
The average credit score in Australia tends to fall between 600 and 700, which is generally considered "Good."
Disclaimer - Credit score ranges and their interpretation may vary across different lenders and agencies.
Several factors contribute to your credit score. Understanding these can help you make informed decisions to improve your score:
Impact: This is the most significant factor and accounts for timely repayment of bills, loans, and credit card balances. Late payments or defaults can drastically lower your score.
Tip: Set up reminders or automatic payments to stay consistent.
Impact: Refers to how much credit you are using compared to your total available credit. A lower credit utilisation ratio (below 30%) is viewed positively.
Tip: Pay off your credit balances regularly and avoid maxing out credit limits.
Impact: A longer credit history demonstrates financial stability and responsible credit use. New accounts may lower your score initially.
Tip: Before making financial decisions such as keeping accounts open, consider your financial goals and consult with a financial advisor.
Impact: A diverse mix of credit accounts, such as a car loan, credit card, and mortgage, can positively influence your score.
Tip: Maintain a healthy variety of credit where possible.
Impact: Applying for too many loans or credit cards in a short time signals potential financial stress and can reduce your score.
Tip: Only apply for credit when necessary and avoid submitting multiple applications within a short timeframe.
As a young professional in Australia, keeping an eye on your credit health is key. Your credit report details your credit history, including accounts, payments, and defaults. Regular checks help spot errors or identity theft early.
How to Get a Free Copy of Your Credit Report
In Australia, you get a free credit report every 12 months from Equifax, Experian, and Illion. Visit their websites to request a free credit report. Spread out your requests to check your report every few months.
When reviewing your credit report, look closely at:
Credit report errors can harm your credit score. This makes getting loans or credit harder. Common mistakes include wrong personal info, outdated account statuses, and duplicates.
To dispute an error, follow these steps:
Items on your credit report stay for at least two years, with some lasting five years. Defaults last five years. So, fix errors quickly to avoid long-term damage.
Your credit score is vital for lenders. A higher score means lower risk. Regular checks and disputes help keep your score healthy, improving your credit chances.
Pay Your Bills on Time
Making on-time payments is key to a good credit score. Payment history makes up about 35% of your score. Missing payments can hurt your score if it happens often.
Automatic payments can help you avoid missing payments. This method also keeps late fees away. Use phone reminders or a calendar to remember when payments are due.
Here's how to set up automatic payments:
Prioritise Payments to Avoid Late Fees and Penalties
If you can't pay everything on time, focus on the most critical bills. Pay off debts with high interest rates or severe penalties first. This includes:
|
Priority |
Debt Type |
Consequence of Late Payment |
|
1 |
Mortgage |
Risk of foreclosure |
|
2 |
Car Loan |
Vehicle repossession |
|
3 |
Credit Card |
High interest charges and fees |
|
4 |
Student Loan |
Wage garnishment, tax refund interception |
Regularly paying off debt shows you can manage your finances. This can boost your credit score. If you're struggling, get help from the Department of Human Services or your bank's support team.
"Your payment history is the most important factor in your credit score. To maintain a good credit score, always make your payments on time, even if you can only afford the minimum amount due." - Financial Expert
Maintaining low credit card balances is critical for your financial health and your credit score in Australia. A significant part of your credit score depends on how you handle credit, and your credit utilisation ratio plays a big role here. Credit utilisation refers to the percentage of your credit limit that you are using. For a strong credit score, aim to keep this below 30% of your credit limit. This demonstrates responsible credit usage and boosts your creditworthiness.
Timely repayments are equally important—missed or late payments can harm your credit score and may stay on your record for up to five years in Australia. Consistently paying your credit card bills on time shows lenders you’re reliable.
Practical Tips to Manage Credit Card Balances
Here are some effective strategies to help you maintain healthy credit card balances and improve your credit score over time:
Plan your spending and stay within your budget to avoid unnecessary debt. Knowing your limits and tracking expenses helps prevent overspending.
Paying only the minimum each month keeps you in debt longer and increases interest costs. To clear your balance faster, aim to pay more than the required minimum.
Regularly check how much credit you’re using compared to your limit. Adjust your spending if your utilisation ratio seems too high.
If you find yourself overspending, talk to your credit provider about reducing your credit limit. This can prevent you from accruing excessive debt.
Use payment reminders or automatic payments to ensure you never miss a due date.
Responsible credit card use includes avoiding unnecessary charges. Follow these steps to avoid credit card fees.
The following table outlines how different credit utilisation ratios impact your credit score:
|
Credit Utilisation Ratio |
Impact on Credit Score |
|
0% - 10% |
Excellent |
|
11% - 30% |
Good |
|
31% - 50% |
Fair |
|
51% - 100% |
Poor |
To achieve an "Excellent" credit rating in terms of credit utilisation, aim to keep your usage at or below 10% of your credit limit. Staying within the "Good" range (11%-30%) is still beneficial, but anything higher could start to negatively affect your score.
Building or maintaining a strong credit score means being mindful of how often and when you apply for credit. Each new credit application, such as for a credit card or loan, results in a hard inquiry on your credit report, which stays there for up to five years. While these inquiries can temporarily lower your score, they only affect your credit for a shorter period. Lenders may view multiple inquiries as a sign of financial stress or higher risk, so it's important to space out your applications to protect your score.
Hard inquiries happen when a lender checks your credit report for a credit application. One inquiry might not hurt your score much, but many in a short time can hurt a lot. This is because lenders see many applications as a sign of financial trouble or higher risk of not paying back.
But, some inquiries, like those for pre-approved offers or checking your own report, are soft and don't hurt your score.
Applying for credit requires strategic planning to avoid unnecessary impacts on your credit score. Every time you apply for credit, your lender conducts a hard inquiry on your credit file, which can temporarily lower your score. To protect your creditworthiness, it’s essential to time your applications carefully and minimize hard inquiries.
Hard inquiries occur when a lender reviews your credit report to assess your suitability for a loan, credit card, or other financial product. These inquiries can stay on your credit report for up to five years in Australia and may slightly decrease your credit score. However, this effect is temporary and can be mitigated by being strategic with your applications.
When comparing credit products like home loans, car loans, or personal loans, it’s smart to shop around. Most Australian credit scoring models, including those used by Equifax, Experian, and Illion, account for comparison shopping. Multiple inquiries for the same type of loan made within a two-week period are typically treated as a single inquiry. This allows you to compare options without significantly impacting your score.
While managing credit applications is important, your overall credit behaviour plays an even bigger role in maintaining a healthy credit score. Here are two critical practices:
Use less than 30% of your total credit limit, and ideally aim for single-digit utilisation. Lower credit utilisation demonstrates responsible use of credit and positively affects your score.
Paying all debts, bills, and credit card balances on time is crucial. Late or missed payments can have a long-term negative effect on your credit score and may deter lenders from approving future applications.
Young professionals can use secured credit cards and credit-builder loans to start building a good credit history. These tools are made for those with little or no credit history. They help increase your credit score over time.
Secured credit cards need a deposit, often the same as the credit limit you want. This deposit makes it easier to get a secured card. Student credit cards may offer lower fees and interest rates, depending on the financial institution and terms offered. Some even offer rewards like points or cash back.
With secured credit cards, you can manage how much you owe and repay each month. But, remember, carrying a high balance can hurt your credit score, even if you pay on time.
Establishing a solid credit history is essential for achieving financial goals, whether it’s securing a mortgage or obtaining a car loan. If you’re just starting or need to rebuild your credit, credit-builder loans could be a great option. These loans are designed to help you build a positive credit history while also encouraging savings.
Credit-builder loans operate differently from traditional loans. Instead of receiving the loan amount upfront, the lender places the funds in a secure account. You then make regular payments toward the loan. Once the term is complete, you gain access to the total amount, often with added interest.
This process helps demonstrate your ability to manage repayments, which financial institutions look for when assessing your creditworthiness. It’s like a financial stepping stone—helping you build your credit profile while also saving money.
Building credit can be tough for young professionals. But, becoming an authorised user on someone else's credit card can help. This means you get added to a family member or friend's credit card account. You then benefit from their good credit history.
Choosing the right primary cardholder is key. They should have a good payment history and low credit use. This is because payment history and credit use greatly affect your score. Being an authorised user can help lower your credit use, which is good for your score.
Being on an older credit account can also boost your score. This is because the age of the account matters a lot in your score. As an authorised user, your activity shows up on reports in a couple of months. This helps you build credit fast.
However, not all credit bureaus report the same way. Experian might not show negative info from the primary cardholder. But, others might. So, it's crucial to talk about spending limits and payment plans with the primary cardholder.
|
Pros |
Cons |
|
No credit check or income requirements |
Potential negative impact from primary cardholder's missed payments |
|
No credit check or income requirements |
Limited control over account management |
|
Quick credit-building opportunity |
Possible high credit utilization ratio |
It's smart to keep an eye on your credit scores as an authorised user. This lets you see how your credit is growing. Being an authorised user is a great way to start building credit, especially for those with little or no credit history.
It's important to keep an eye on your credit to keep your finances healthy. By monitoring your credit, you can see how your score changes and spot any odd activity early. This way, you can make smart choices and protect your credit.
In Australia, you can use free services to watch your credit. These services give you updates on your score and alert you to any big changes. Over a million Australians use Credit Savvy to check their scores. It makes it easy to see where you stand with its 5-band system.
CommBank's Credit Score Hub is free for those 18 and older. While it's free, CommBank pays Experian for the service. Remember, your score might be different if you get it from another place.
You can also get a free Experian credit report from Experian. This report has lots of info about your credit history.
Setting goals for your credit score can help you stay focused. With clear targets, you can improve your score over time. Credit Savvy sends monthly updates to help you track your progress.
When setting financial goals, it’s important to understand credit score ranges. A score between 700 and 799 is generally considered very good. Lenders use your credit score to determine your eligibility for loans and the interest rates they’ll offer.
In Australia, credit scores are assessed by several credit reporting agencies, each with its own scoring range and categories. Here's a breakdown of the credit score ranges for three major agencies:
Equifax (Score range: 0 - 1,200):
Experian (Score range: 0 - 1,000):
Illion (Score range: 0 - 1,000):
These categories help lenders assess an individual's creditworthiness, with higher scores indicating a lower risk to lenders. Canstar
It's important to note that each agency may have slight variations in their scoring models, and lenders might interpret scores differently based on their criteria.
Regularly checking your credit score and understanding these ranges can assist in maintaining or improving your financial health.
Building a strong credit score is key for young professionals in Australia aiming for financial success. Lenders look at credit scores, which range from 300 to 850, to decide if they'll lend money or issue credit cards. These scores are based on your financial history, how you pay bills, and your debt levels.
They consider things like how you've paid loans, the types of loans you've had, and how long you've had credit. Payment history is the biggest factor, making up 35% of your score.
To boost your credit score quickly, keep your credit balance under 30% of your limit. Also, check your credit reports for errors and pay bills on time. Reducing credit limits and paying off credit cards fully each month can also help.
Credit scores of 700 or higher are seen as good by lenders. Scores above 800 are considered excellent. Services like Experian Boost can also help increase your score by considering rent and utility payments.
By sticking to these tips and keeping an eye on your progress, you can improve your creditworthiness. This will help you achieve long-term financial success. Remember, improving your financial habits will positively change your credit history and score over time.
With commitment and discipline, young professionals in Australia can quickly build their credit scores. This opens the door to better financial opportunities.
Not all credit cards are created equal. Discover the types of credit cards available in Australia and find one that supports your credit-building journey
