Nine ways to keep your credit score in good shape


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Want to keep your credit score as high as possible?

The first step is to make all your loan repayments on time.

Here are nine sensible strategies to keep your credit score healthy.

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1. Make payments on time and lift your score

Not so long ago, only negative details, like missed loan repayments, were noted on credit records.

That changed in 2017 when comprehensive credit reporting (CCR) was introduced. It means positive steps, such as making repayments on time, are also recorded.

Experian estimates many Australians would have seen a 3% uptick on their credit score as a result of CCR.

This highlights the value of staying on top of repayments. You won't score brownie points for paying extra, but at least aim to pay the minimum.

2. Avoid repeatedly running late on your payments

Late payments are recorded on your credit file if you're at least 14 days behind the due date.

Equifax says that a single late payment won't be too badly frowned on by lenders, but repeatedly running late can suggest you're in financial distress.

If you're running behind, aim to make up the payment as soon as possible. If you dispute a payment, it's better to pay up first and resolve the issue later rather than risk taking a hit to your credit score.

3. Don't duck debts - they'll slash your score

Failing to pay debts altogether, known as a default, can slash your score by up to 60 points. Defaults are only recorded if they are more than $150 and at least 60 days overdue, but the default stays on your credit file for five years.

"A default may be wiped from your credit file quickly if your credit provider made a mistake, or if something happened such as a natural disaster that prevented you making a repayment," says David Marshall.

If you've simply not paid, it is important to make good with the debt. "The default will still appear on your credit file but at least your report will be updated with a note showing the debt's been paid," he says.

If you know it'll be a problem making a payment, contact the lender straightaway. Jack Talbot, director of broking firm Leverage Capital, says simply hoping the issue goes away is the worst thing you can do.

"A lender will be very sympathetic to a customer who is proactive with their problems," he advises. "As soon as you have an issue, call the lender. They will be happy to negotiate to get you back on track."

4. Keep a lid on the number of debts

Overextending yourself with debt can hammer your score. It's not so much a problem having a large debt like a home loan.

The danger zone can be having a large amount of small debts like credit cards.

As a guide, Experian found that among Australians with more than seven credit cards, almost one in five had a late payment in the past six months. On the other hand, less than 3% of those with just one credit card showed a late payment.

5. Keep applications for credit to a minimum

Making multiple loan or credit applications can knock your score down by as much as 150 points. That's because it can suggest you've been rejected by other lenders, or that you're desperate for money.

Worse still, loan enquiries can stay on your credit record for up to five years.

So don't cast your net wide and apply for several loans in the hope that at least one is approved. It's better to wait until you've found the right loan before making a formal application. Or speak to a broker for help in finding the loan and lender best-suited to your circumstances.

6. Go easy on buy now, pay later

Buy now, pay later providers like Zip, Klarna or Humm may check your credit record before approving your account.

In addition, they can choose to let credit reporting agencies know if you've run late or defaulted on any payments, potentially lowering your score.

Bear in mind, too, if your BNPL account is linked to your credit card, overdoing purchases could mean running late with a card payment. This will be noted on your credit file and push your score down.

7. Pick a co-borrower with care

We each have a personal credit score regardless of marital status. Getting married will not see your scores combined - there is no joint credit score.

However, if you and a spouse or partner apply for a loan as co-borrowers, each of your scores can be impacted.

When it comes to a joint loan, the financial behaviour of your spouse/partner has the potential to lower your credit score.

This is especially the case if they can't or won't contribute to repayments, leaving you lumbered with the lot (see "Back on track after a desperate decision").

8. Keep lenders up to date with your details

If you change address, don't forget to let the bank, phone and electricity company know your new contact details.

Keeping credit providers up to date with your address means you'll continue to receive bills, reminders and overdue notices for all your credit accounts.

These gentle - and not-so-gentle - reminders can help you avoid the hit to your credit score that comes from a late payment or default.

9. Make use of direct debits to stay on top of bills

One of the easiest ways to stay on top of bills and repayments is to set up regular, automatic direct debits.

Time the payments to match paydays when there's plenty of cash in your account, and it's hard to go wrong. But surprisingly few of us use this option.

The Reserve Bank says BPAY and online bank transfers still only account for less than 5% of total payments.

It costs nothing to put bill and loan repayments on autopilot, and it can be an easy way to give your credit score an uptick over time through positive reporting. If you're unsure how to set up an automatic direct debit, get in touch with your bank.

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A former Chartered Accountant, Nicola Field has been a regular contributor to Money for 20 years, and writes on personal finance issues for some of Australia's largest financial institutions. She is the author of Investing in Your Child's Future and Baby or Bust, and has collaborated with Paul Clitheroe on a variety of projects including radio scripts, newspaper columns, and several books.