Your credit score isn’t simply a snapshot of your history as a borrower. It’s the number lenders use to predict future credit-related behaviours. The good news is that you can take steps to restore a low credit score. With time, the impact of good actions will compound with your creditworthiness.

Why should you improve your credit score?

Access to credit gets you where you want to go faster. Buying that dream house, launching a business, upgrading a car and having extra financial resources as a ‘buffer’ all require a good credit standing.

Conversely, people with lower credit scores pay more interest and fees simply because they’re viewed as riskier consumers.

Boosting your credit score will help you save more money. It’s an essential financial management skill.

Getting your credit score out of the red

There are some guiding principles when it comes to maintaining a strong credit profile.

Aim to get to the very good, great or excellent categories. For Equifax, this is above 735. For Experian and Illion, it’s over 700.
Only borrow what you’re confident you can pay back.
Avoid using credit to fund a lifestyle.
Always make monthly payments on time.
Repay debt as soon as possible.
Aim to stay below 30% of available credit.

Be conscious of mistaking available credit as money to spend, especially if you’re working on your credit score. It may seem easier to stretch your budget by ‘throwing it on the credit card’ rather than handing over cash. Making transactions with that plastic card feels good until the bill comes.

How to improve your credit score

Know your credit score and check it frequently
Check for errors and fix mistakes
Pay your bills on time
Avoid late fees
Keep credit card balances low
Pay down outstanding debt and loans
Think carefully before applying for new credit
Adjust your credit card limit
Hold unused credit with zero balance
Deal with defaults and debt collectors

Know your credit score and check it frequently

Order a free credit report and credit score from one or more credit reporting agencies so you know exactly what you’re working with and what you need to do to improve your credit rating. As you increase your credit score, continue to make regular check-ins to help you stay on track and monitor your progress.

Check for errors and fix mistakes

Review your credit report carefully, checking for potential mistakes or signs of fraud. Contact the credit bureau to repair the error if you notice something off — such as a debt you know you paid off.

Pay your bills on time

Maintain a budget and make a spreadsheet with all of your repayment responsibilities. It’s easy to lose track of what comes out and when, so consider setting up automatic payments or direct debits. Be sure not to let your bank account drop below a certain amount.

Whenever possible, make payments that are more than the monthly minimum before the due date.

Avoid late fees

Even with our best efforts, a bill sometimes slips through the cracks. In case you miss a payment, make sure to know the grace periods for each provider so you can avoid a default charge. Every default charge is a knock to your credit score.

Keep credit card balances low

Part of your credit score is influenced by your credit utilisation, the portion of your credit limits you are using at a given time. It’s best to keep that number below 30%. Use this knowledge to your benefit by ensuring your credit utilisation is low when your credit issuer reports your activity to credit agencies. A simple way to achieve this is by paying down your balance before the billing cycle ends or by paying several times throughout the month.

Getting your first credit card? Whether you’re a beginner or a credit card pro, make sure you know how to handle a credit card responsibly. It’ll save you time, money and frustration.

Pay down outstanding debt and loans

The more you pay down what you owe, the better you’ll look. Updating your financial management system and cash flow will help you gain control. Scott Pape, financial thought leader and author of The Barefoot Investor, talks about bank accounts as ‘buckets’ and rearranging debts from smallest to largest. The aim is to knock off the smallest debt to build up confidence in the quickest possible way.

Think carefully before applying for new credit

While repairing your credit score, you may want to avoid applying for new credit as to minimise the number of credit enquiries on your report. Instead, use this time to prove to yourself (and the lenders) that you can handle credit responsibly. Show the banks you can manage your existing credit because it’s not how much you have but how you use it.

Adjust your credit card limit

Available credit is an important metric in determining credit trustworthiness. Lower the limit if you’re having trouble managing credit card debt and are worried you might be tempted to use the credit card while you’re paying it off.

Alternatively, if you’re keeping up with payments but find yourself edging closer and closer to your credit limit every month, ask for a credit limit increase. When your credit limit goes up, and your balance stays the same, it instantly lowers your overall credit utilisation, which can improve your credit.

Hold unused credit with zero balance

You might be quick to want to shut every line of credit down once you pay it off but maintaining these accounts while boosting your credit score can be helpful. It shows you can hold credit without using it.

Deal with defaults and debt collectors

Prevent defaults and debt collection agencies from putting red marks against your name. Don’t be afraid to pick up the phone and speak with your lenders. Negotiate better rates, let them know your situation, and avoid putting off essential conversations. You’ll feel better knowing you’re taking the steps forward.

Since July 1, 2022, financial hardship arrangements with your providers can’t be used to calculate your credit score. Organizing financial hardship arrangements highlights that you’re taking steps to pay off your debt and, therefore, shouldn’t be penalized. It’s worthwhile reaching out to your lenders.

How to set a credit score goal

It’s easy to lose momentum if you’re spending less for the sake of spending less. Instead of focusing on a specific number, think about your credit score rating. Focus on climbing through the categories — moving from average to good, great and up to excellent. This helps simplify the journey of improving your credit score and allows you to focus on staying in a range rather than a specific number.

Aim for an excellent rating, not a perfect 1,000 or 1,200 score.

Minimum credit score guidelines

A good credit score goes hand-in-hand with achieving your big life goals. Are you planning to buy a house, upgrade your car, or get a credit card or personal loan?

Consider your financial dreams and use your highest priority personal goal to inform your target credit score, keeping in mind these minimum credit score guidelines based on Experian credit ratings.

Credit type	Minimum credit score	Increased approval odds
Credit card	550+	625+
Home loan	625+	700+
Personal loan	550+	625+
Car loan	550+	625+

Just take these ‘minimums’ with a pinch of salt. Keep in mind that every lender has its own criteria and guidelines, and the credit histories of two “good” scores aren’t always equal in the eyes of a credit provider.

For example, a home loan lender may pass on an ‘average’ credit score from someone who hasn’t taken out a loan, but approve a borrower with a slightly lower score with a positive history managing their loans.

Plus, just because you can get approved doesn’t mean you’ll enjoy an attractive deal. Lenders who approve average — or lower — credit scores usually mitigate any perceived risk with higher interest rates, strict terms and additional loan criteria.

Squeaking through the approval process may cost you in the long run. If you can wait until you’ve improved your credit score, your patience will be rewarded with lower rates and more favourable loan terms.