How to repair your credit score

Having a bad credit score can sometimes feel like a life sentence. However, there are ways to get your credit score back on track.

What is a credit score?

Your credit score is a rating that reflects your history of managing credit, including credit cards, personal loans, and even phone plans.

A high number means you have a good history of managing credit, which means banks should feel confident you will repay any loan they might give you.

A low number means you have a bad history of managing credit, therefore banks might regard you as a risk and be unwilling to lend you money.

What is a credit report?

A credit report is a document that outlines your credit history.

It includes information like how many loans you’ve applied for, how successful you’ve been at repaying those loans, and any defaults or bankruptcies.

A credit report also includes personal information, such as your date of birth, address and employment history.

Five steps to improve your credit score

1. Get the most up-to-date version of your credit score
2. Check for mistakes
3. Pay off your existing debts
4. Consider completely cancelling your credit card
5. Add positive information to your credit report

1. Get the most up-to-date version of your credit score

Australia has two main credit reporting bureaus that offer credit reports; Equifax and Experian.

You can access your credit score by contacting one of these bureaus. You can typically get one free copy of your credit report every three months, plus when you’ve recently had a credit application declined. You may also be able to access additional copies of your credit report by paying a fee.

You can also access your credit score for free via RateCity or other websites and services.

2. Check for mistakes

It’s not uncommon for credit reports to contain mistakes. One of the most common errors can involve your name being linked to the debt of a family member, or even a stranger with a very similar name to yours.

Australia’s financial services regulator, ASIC, provides a detailed explanation on how to fix incorrect information on your credit report, and how to contact an ombudsman if you need help.

3. Pay off your existing debts

If you have multiple sources of debt (credit card, car loan, personal loan, etc.) you may want to consider adjusting your household budget to prioritise paying these debts off. Once you know how much you owe, you could set money aside to pay one debt off at a time, starting with the debt with the highest interest rate. If you have any additional cash left over at the end of your pay cycle, it might be a good idea to put it towards clearing these debts as well.

If you have troubles paying your bills on time, you can set up direct debits with your bank to pay your credit card and other bills before their due date. Putting your payments on autopilot help remove some of the stress involved when having to remember multiple debit dates for various bills.

Mobile banking apps can also help users pay off existing debts by detecting regular bill payments, notifying you of upcoming bills and auto-categorising your transactions. You may also be able to limit your weekly or monthly spend, so you can budget without stress.

4. Consider completely cancelling your credit card

Paid off your outstanding credit card debt but don’t trust yourself to keep using the card? It may be time to give it the chop, so you can avoid the temptation of building up more debt in the future that could put your credit score at risk again,

If you have a rewards card, once you’ve paid off the outstanding balance, you may want to redeem any existing rewards points and/or transfer them to your frequent flyer account. Then you can contact your lender to advise you want to cancel.

Your lender may approve your cancellation over the phone by confirming your identity, although some may request a written cancellation request, either online or by filling out a paper form. If they do not take phone cancellations, simply write to your lender advising you want to cancel and close the account, including your credit card number and account details. You should receive a cancellation confirmation via mail and/or email.

While physically cutting your credit card up may be a therapeutic and symbolic way of removing it from your life, you’ll need to close off your account completely to help ensure you don’t inadvertently further damage your credit rating. Remember to cancel all direct debits linked to your cancelled credit card. Once you’ve confirmed the account is well and truly closed, you can destroy your credit card.

If you could still use a credit card in your personal budget, you could compare different credit card options and look for one offering a lower interest rate or higher number of interest-free days. In some cases, these features may better suit your spending style, allowing you to better manage your money in the future without ending up unmanageable debt.

5. Add positive information to your credit report

There are various ways you can show creditors you are a reliable borrower. But did you know there are also ways you can show lenders you are reliable, without paying off debt?

Thanks to comprehensive credit reporting, both positive and negative credit behaviours can contribute to your credit score. So even if you’ve made mistakes with your money in the past, it may be possible to improve your credit score over time by demonstrating good credit practices.

Lenders typically look for stability in your personal and financial life. If you:

• are a homeowner
• have lived at the same address for several years
• have been with the same employer for several years
• regularly and consistently pay bills and debt repayments on time

…these factors may reflect positively on your credit record. If you believe that this information has not been included in your report, you can notify credit reporting agencies to include it.

Stay on course!

You’ve paid off your debt and you’ve cancelled those tempting credit card accounts – congratulations!

Moving forward, you may want to make sure you maintain the good habits you’ve developed while repairing your credit history. Keep track of your transactions, budget and save effectively, auto-pay your bills and try to show lenders you have a stable financial and personal life.

Compare credit cards

Provider

Purchase rate p.a.Balance transfer rateInterest free daysAnnual fee

23.99%

Not Applicable

55

$99

More details

Australian Credit Licence 392145

Fees & charges apply

Australian Credit Licence 392145

Fees & charges apply

David Jones Premiere credit card

• Promoted
• Apple, Google & Samsung Pay
• Low annual fee

23.99%

Not Applicable

55

$295

More details

Australian Credit Licence 392145

Fees & charges apply

Australian Credit Licence 392145

Fees & charges apply

David Jones Prestige credit card

• Promoted
• Apple, Google & Samsung Pay

10.49%

10.49%

45

$0

for 12 months then $48 thereafter

Australian Credit Licence 236509

Fees & charges apply

Australian Credit Licence 236509

Fees & charges apply

First Option Bank Low Rate Visa Credit Card

• Special
• Apple, Google & Samsung Pay
• Balance transfer
• Low annual fee

20.99%

21.99%

44

$375

Australian Credit Licence 234527

Fees & charges apply

Australian Credit Licence 234527

Fees & charges apply

ANZ Rewards Black

• Bonus Points
• Apple, Google & Samsung Pay
• Balance transfer

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