The 4 biggest things messing with your credit score...and what could actually help it

A woman holds a credit card on a pink background.
What has left a red mark on your credit score and what will help boost it?

Remember that time you bought a new wardrobe with buy-now-pay-later?

Or when you applied for an “emergency credit card” but actually ended up using it to skydive in the Swiss Alps?

Applying for credit (like a credit card) could affect your credit score. And it’s not just when you forget to repay.

Your credit score is calculated based on all the information in your credit report. It’s kind of like a big, digital book that records:

  • How much you’ve borrowed

  • How much you’ve tried to borrow (yes, even those ‘test’ applications)

  • Whether you’ve made your repayments on time.

And here’s the thing: bad financial decisions (like forgetting to pay a bill) can negatively impact your credit score, but good financial habits can also positively impact your score.

What can decrease my credit score?

  • Too many credit enquiries: Making an application for credit might hit your credit score, but it’s not always an indication of irresponsible borrowing. However, making multiple applications for credit within a short period of time can suggest to your bank or lender that you’re a little desperate for cash, which isn’t a good sign.

  • Defaulting on your repayments: If you have a debt worth more than $150, and it’s overdue by more than 60 days, it can be reported to a credit agency. You really don’t want this to happen because it can be recorded on your report as a “default”. The default will stay on your report for five years, like that coffee stain you can’t get rid of. These defaults indicate to your bank or lender that you can’t keep up with your financial obligations.

  • Defaulting on your bill payments: It’s not just loans you need to be wary of. If you default on a bill payment (think: phone bill, gas, electricity), your provider can report this default to credit agencies. And no, moving houses without notifying your provider isn’t an excuse (unfortunately).

  • Making late payments: If you make a payment more than 14 days after its due date, then this may be recorded as a missed payment. Missed payments remain on your report for two years. And yes, this includes many of the buy-now-pay-later providers too.

What can increase my credit score?

You can safely assume that doing the opposite of whatever’s listed above will have a positive impact on your credit score. But, let’s run through how it works.

  • Making repayments on time: If you pay all your bills and loan repayments on time, this shows that you’re responsible with your finances and can actually handle debt. The best way to build your score is to set reminders for your repayment due-dates, or set up a direct debit system, so you’re never late on repayments.

  • Having good debt: Not all debt has been created equal. There’s good and bad debt. Good debt would be things like a home loan, whereas bad debt may be a large personal loan. These debts will have different effects on your credit score.

  • Checking your credit score: Checking your credit score helps you find out if there are any inaccuracies on your report. Whether that’s a simple mistake made by the lender, or something more serious like identity theft, you’ll need to get on top of it and report it straight away. You can do that by contacting your credit provider or your credit reporting agency.

What is a good credit score?

Each reporting agency will calculate scores slightly different, but generally:

  • Excellent: 833-1200

  • Very Good: 726-832

  • Good: 622-725

  • Average: 510-621

  • Below Average: 0-509

CHALLENGE: Automate your bill repayments

  1. Find your phone bill

  2. Head to your provider’s website

  3. Log-in to your account

  4. Follow the prompts to set up a direct debit for your bill repayments.

If you already direct debit your phone bill, then set up a direct debit to manage your utility bills (i.e. electricity or water!).

Flux tip: Pick a provider that offers you discounted rates for direct debits and early payments!

The guidance and suggestions provided in Yahoo Finance's 6-Week Financial Bootcamp are of an informational nature only, and are not intended to constitute financial advice. You should make your own enquiries as to whether the 6 Week Financial Bootcamp is suitable for your own personal circumstances. Yahoo Finance does not guarantee any particular outcome arising out of your participation in the 6 Week Financial Bootcamp.

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