Know your score: How to hack your credit health
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Know your score: How to hack your credit health

With most of the attention on the Banking Royal Commission in recent months, it has been easy to miss a significant change which has taken place in the Australian credit landscape.

After more than 50 years as a "negative" credit scoring country, Australia has joined other developed economies and moved to "positive" credit records.

Ensuring your credit health remains strong is important following the move to "positive" credit recording.

Ensuring your credit health remains strong is important following the move to "positive" credit recording. Credit:AFP

This means rather than just keeping track of negative credit events, like late payments and defaults, we now have a score based on our credit behaviour — both good and bad.

The better your behaviour, the higher your score.

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Lenders look to your credit report to determine your attractiveness as a customer, so enhancing your score improves the ease and cost effectiveness of future borrowings.

The reality is that most of us will need debt at some point to provide flexibility and growth.

Whether buying a home, starting a business or bridging a financial gap, having access to credit can make life easier.

The recent changes mean that your credit report is a valuable asset to be nurtured and safeguarded.

However, some groups will find this challenging. For example, women working in unpaid roles and young people who have not built up a credit history may increasingly struggle to secure their first loan.

Starting with a low limit credit card, putting mobile phone and utilities in your name and paying on time can be helpful to build a credit history and enhance future borrowing capacity.

Here are some other tips to ensure that your credit health remains strong:

Consolidate and lower your limits

We often like to have multiple credit cards, personal loans and overdrafts "just in case."

However, the fewer credit facilities and the smaller their limits, the better your credit score.

Aim to have just one credit card with a limit lower than your monthly take home pay. This might mean that you need to make alternative arrangements on the odd occasion when you make larger purchases, such as overseas airfares or new furniture, but it will go a long way to ensuring that you don’t get into credit problems.

Limit applications for credit

Attractive new offers with low honeymoon interest rates are designed to be tempting.

However, frequent applications increase the possibility that a credit application is declined and negatively impacts your credit report.

A long history of using a small number of credit facilities responsibly enhances your credit score, so think carefully before applying to increase limits or change providers.

Pay on time, in full

The full payment of rent, bills, credit cards and mortgage repayments on time each month has a positive impact on your credit score.

Automate where you can, with direct debits timed to coincide with the day you get paid, ensuring that there are always sufficient funds in your bank account to cover the bills.

Not only will this nurture your credit score but it will reduce the cognitive burden of all the "to dos" on your list each month.

Know your score

Exemptions to privacy legislation mean that your authorisation is not required for your information to be available to ratings agencies.

It is important that this information is correct and you understand your score.

The following websites offer a free credit rating, so an annual credit health check is easy.

Creditsavvy , FinderGetcreditscore and WisrCredit

Beware of offers to "repair" your credit report. These can be costly and generally do no more than correct inaccuracies, which you can do yourself for free.

CreditSmart  is a great resource to help understand your credit report, with tips to improve your score.

More debt is not necessarily better and just because you can borrow does not mean that you should.

However, checking in regularly to ensure that your credit health is strong will mean that when you want to borrow you can.

Catherine Robson is the founder of financial planning practice Affinity Private Advisors

Catherine Robson is a financial planner with Affinity Private.

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