Your credit score affects your ability to borrow money, secure rental properties, and even get certain jobs. If your credit score needs improvement, here's a comprehensive guide to repairing it in Australia.
Understanding Credit Scores in Australia
In Australia, credit scores typically range from 0 to 1,200, depending on the credit reporting agency. The main credit reporting bodies are:
- Equifax: 0-1,200 scale
- Experian: 0-1,000 scale
- Illion (formerly Dun & Bradstreet): 0-1,000 scale
Credit Score Ranges
- Excellent (800+): Access to the best rates and products
- Very Good (700-799): Good access to credit at competitive rates
- Good (625-699): Access to most credit products
- Fair (550-624): Limited access, higher interest rates
- Below Average (0-549): Difficulty accessing credit
Step 1: Get Your Credit Report
Before you can improve your credit, you need to know where you stand. In Australia, you're entitled to one free credit report per year from each credit reporting agency.
How to get your free credit report:
- Visit the websites of Equifax, Experian, and Illion
- Complete the online application
- Provide identification documents
- Wait 10 business days for postal delivery
Step 2: Review Your Credit Report Carefully
When you receive your credit report, look for:
- Personal information errors: Wrong name, address, or date of birth
- Account inaccuracies: Accounts that aren't yours or incorrect payment history
- Duplicate entries: The same debt listed multiple times
- Old information: Negative information that should have been removed
- Fraudulent accounts: Accounts opened without your knowledge
Step 3: Dispute Errors and Inaccuracies
If you find errors on your credit report, you have the right to dispute them. Credit reporting agencies must investigate disputes within 30 days.
How to dispute errors:
- Contact the credit reporting agency in writing
- Provide specific details about the error
- Include supporting documentation
- Keep copies of all correspondence
- Follow up if you don't receive a response within 30 days
Step 4: Address Outstanding Debts
Outstanding debts, especially those in collections, significantly impact your credit score. Here's how to address them:
Current Debts
- Make all minimum payments on time
- Pay more than the minimum when possible
- Consider debt consolidation if beneficial
Overdue Accounts
- Contact creditors to arrange payment plans
- Negotiate partial payment settlements if necessary
- Get agreements in writing before making payments
Defaults and Collections
- Negotiate with collection agencies
- Consider requesting "pay for delete" arrangements
- Understand that defaults remain on your report for 5 years
Step 5: Establish Positive Credit History
Building positive credit history is crucial for improving your score over time.
Payment History (35% of your score)
- Pay all bills on time, every time
- Set up automatic payments to avoid missed payments
- Pay utilities, phone, and other regular bills promptly
Credit Utilization (30% of your score)
- Keep credit card balances below 30% of the limit
- Aim for below 10% for the best impact
- Don't close old credit cards (unless they have annual fees)
- Consider requesting credit limit increases
Length of Credit History (15% of your score)
- Keep old accounts open
- Use older accounts occasionally to keep them active
- Don't apply for new credit unnecessarily
Step 6: Manage Credit Applications
Too many credit applications can negatively impact your score.
Hard vs Soft Inquiries
- Hard inquiries: Credit applications that affect your score
- Soft inquiries: Checking your own score or pre-approved offers
Best practices:
- Only apply for credit when necessary
- Space out credit applications by at least 6 months
- Do rate shopping within a 14-45 day window for the same type of loan
Step 7: Consider Professional Help
Sometimes professional assistance can be valuable:
Financial Counsellors
- Free service available through the National Debt Helpline
- Can help negotiate with creditors
- Provide budgeting and financial planning advice
Credit Repair Companies
- Can help dispute errors and negotiate with creditors
- Fees vary, so compare options carefully
- Be wary of companies that guarantee specific results
What NOT to Do
- Don't use credit repair scams: No one can legally remove accurate negative information
- Don't close all credit cards: This can hurt your credit utilization ratio
- Don't ignore your credit report: Regular monitoring is essential
- Don't apply for multiple credit products quickly: This can lower your score
Timeline for Credit Repair
Credit repair takes time, but you can see improvements within:
- 30-60 days: Corrections to errors and disputes
- 3-6 months: Paying down balances and consistent on-time payments
- 6-12 months: Significant improvements with good habits
- 2-5 years: Recovery from major negative events like defaults
Monitoring Your Progress
Keep track of your credit score improvement:
- Check your credit score monthly through free services
- Review your full credit report annually
- Set up credit monitoring alerts
- Keep records of all actions taken
Conclusion
Repairing your credit score requires patience, persistence, and good financial habits. While the process can take time, the benefits of improved credit—lower interest rates, better loan terms, and more financial opportunities—make the effort worthwhile.
Remember, there are no quick fixes for legitimate credit issues. Focus on building good financial habits, and your credit score will improve over time. If you're struggling with debt or credit issues, don't hesitate to seek help from qualified financial counsellors or advisors.