Improving your credit score

One of the main questions around credit scores is: why does it matter?

What benefits do I gain from improving my credit score?

This article provides a deep dive into the rewards you can reap from a higher credit score.

Your credit score can impact your chances of approval when applying for a credit product, like a loan or credit card.

That influence might be positive or negative, depending on your score, and may help you get a better offer if you have a higher score.

Let's take a closer look at how your credit score can make it easier or harder to earn approval and access advantages like a lower interest rate. Then, we'll share some advice for increasing your chances of approval.

How your credit score influences the credit product approval process

You can think of your credit score's role in approval for products like loans and credit cards as a key ingredient in a recipe. While many factors contribute to the overall approval process, your credit score is one of the most important parts.

Whenever you apply for a home loan, car loan or other credit product, the provider considers certain personal and financial information — their recipe — before making a final decision. These professionals are careful and focus on the details. They don't leave anything out when they formulate their final decision.

A credit score is central to this process. It's a snapshot of overall financial health, something nearly every lender takes into account before moving onto more specific details.

As for how your own score influences your lender's decision, it's pretty straightforward:

  • A higher credit score indicates a lower level of risk for the lender, which often makes it easier to earn approval.
  • A lower score represents increased risk for the lender, which can lead to more denials.

Every application and situation is unique, but your credit score will almost always come into play.

What benefits can you get with a better credit score?

Providers will always want to reduce the risks they face when extending credit. At the end of the day, it's their money on the line if a loan or credit card can't be paid back.

With that in mind, you might not be too surprised to hear that credit scores influence the terms and conditions a provider offers.

If you have a higher credit score, you are seen as low risk. Advantages you may have access to include:

  • A greater number of lenders will be eager to work with you
  • Providers may be willing to offer a larger loan amount or credit limit
  • Potentially be offered lower interest rates on loans and credit cards
  • More likely to be approved for loan applications

This means you may:

  • Save more money long-term with better interest rates
  • Have more flexibility to make larger purchases
  • Reach your financial goals sooner with fewer roadblocks
  • Have access to money for a rainy day to get out of financial emergencies

If you're in the market for an expensive home or a particular type of brand new car, a strong credit score can go a long way.

It's a simple fact, and a major advantage. An exceptional credit score can lead to exceptional service.

Taking advantage: Steps to a better credit score

You might be asking how you can improve, and then maintain your score. Who doesn't want to take some of the anxiety out of the approval process, and spend less on repaying loans or credit card balances?

To raise your score, you could:

  1. Close unused credit cards
    Closing out credit card accounts that are rarely or never used means you're responsible with your finances, which leads to a boost in your credit score.
    Don't close out all your cards, even if you have your heart set on securing a better interest rate or other advantages. Length of credit history is another factor in your score. But take a look at your open accounts and see which ones you can do without. Keep any eye out for high interest rates and other terms and conditions that you don't want to deal with anymore.
  2. Apply for certain types of credit
    Your score takes the quality and type of credit and loans into account. Secured credit applications, which put up an asset you own as a guarantee on the loan, made to large banks and auto financiers can improve your score.
  3. Be consistent!
    Make small financial changes daily to build positive financial habits. Being consistent in your home and career also impacts your credit score.

Keeping up with your credit score

Good habits yield powerful rewards. To make sure your hard work is recognised, start reviewing your credit score regularly.

GetCreditScore offers a simple, secure and free process for checking your credit score. Create your account today to track your progress toward benefits like lower interest rates and better terms and conditions.

 


Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstance before acting on it, and where appropriate, seek professional advice from a finance professional such as an adviser.