The Dos and Don'ts of Building Your Credit Score

Your credit score is more than just a number - it's a key factor that determines your financial stability and opens doors to new opportunities. Whether you're applying for a loan, a credit card, or even renting a property, your credit score can make or break your chances of success. 

Did you know that according to a study by Finder, 60% of Australians (13.8 million people) don’t know their credit score? This means that over half of the population is unaware of their creditworthiness and may be missing out on opportunities to improve their financial health. 

Building a strong credit score is essential, but it's not always easy. To help you navigate the process, we've compiled a list of the dos and don'ts of building your credit score. By following these tips, you can establish a solid credit history, secure better loan terms, and achieve your financial goals.

The Dos

Pay Your Bills On Time

Payment history is the most critical factor that determines your credit score. Late or missed payments can damage your score and make it harder to obtain credit in the future. Set up automatic payments or payment reminders to ensure you don't miss any payments.

Keep Your Credit Utilisation Low

Your credit utilisation ratio is the amount of credit you use compared to your total credit limit. A high credit utilisation ratio can negatively impact your credit score, therefore it is crucial to keep it below 30% to improve your score.

Check Your Credit Report Regularly

Your credit report shows your credit history, including loans, credit cards, and other debts. Make sure to check your report for errors or fraudulent accounts that may harm your score.

Diversify Your Credit Mix

Having different types of credit, such as a mortgage, a car loan, and a credit card, can positively impact your credit score. Lenders like to see that you can handle different types of debt responsibly and efficiently.

The Don’ts

Apply For Too Many Loans At Once

Each time you apply for a loan, the lender will check your credit report, which creates a hard inquiry on your credit report. Too many hard inquiries can lower your credit score.

Close Old Credit Accounts

Closing old credit accounts can negatively impact your credit score. The length of your credit history is an important factor in calculating your score. The longer your credit history, the better your score.

Max Out Your Credit Cards

Maxing out your credit cards can negatively impact your credit score. It shows that you're using a significant portion of your available credit, which can signal to lenders that you're not in control of your finances.

Building and maintaining a strong credit score is a vital component of your financial health. It requires patience, discipline, and a commitment to responsible financial behaviour. However, the benefits are numerous and can positively impact your life in many ways. By following the dos and don'ts of building your credit score, you can establish a solid credit history and take control of your financial future.