Credit scores. Credit history. Credit checks. What does it all mean and can you improve it?
In a nutshell, your credit score is a number out of 1,000 or 1,200 that represents your credit worthiness.
According to the Equifax Credit Score System, your credit score will fall in one of the below ranges. Each range or band represents approximately 20% of the population.
Below average: 0-509
Very good: 726-832
Your credit score is an indicator of the credit risk you pose, and it’s based on previous credit events and other information about you. This means it’s something that you can improve over time. Below are three simple steps to make sure you can start improving your credit score.
1. Make sure you pay your bills on time and in full
Paying your bills on time and in full seems straightforward enough. But it's easy to forget bills or let them slip through the cracks.
Unfortunately, your credit score likely won’t escape unscathed. If you’re a bill or two behind, your credit history will show you were late on your payments.
Equifax says missed payments can remain on your credit file for up to seven years. The only way to improve your credit history is to ensure you pay your bills in full and on time.
Prioritising your debt repayments will not only save you interest, if any. It also allows you to improve your credit score.
2. Avoid excessive hard pulls on your credit history
When you apply for a new line of credit — whether it’s a credit card, a loan, or a mortgage — the provider can do a hard pull inquiry on your credit report.
This means the credit provider checks your credit history to ensure you're likely to be able to afford the payments on the product you’re applying for.
Let’s say you apply for several credit cards over a short period of time. Each one of these applications will result in a hard pull inquiry on your report.
When a lender comes along and sees this, they might deduce you’re short on cash, and therefore they might be less likely to approve your application.
Hard pull inquiries can have a negative effect on your credit score. (You may notice this quite quickly.) They may even impact your ability to get credit for a while.
3. Manage your credit limit
Every few months, review how much credit you have access to. Credit cards, car loans and personal loans should all come into the mix here.
Lowering your credit limits on these accounts might help you improve your score.