Your credit score helps the bank to decide if they’re going to approve your loan application.

The credit bureau keeps a record of your credit cards, account payments and habits and calculates a credit score for you. The bank looks at this number to decide if you’ll be able to handle more credit and, if you can, what interest rate you’re going to get.

If your credit score isn’t looking healthy, here are a few ways to help improve it.

Get your credit report

You can get it for free once a year from one of the credit bureaus. Check for any errors in the information and dispute anything that’s incorrect. You’ll also see the number of enquiries made by credit providers that you’ve applied to in the past year – make sure that it’s all accurate. Remember, credit providers must get your permission to do a credit check so if there are any applications you didn’t make then it could be a sign of fraud.

Pay on time, every time

Your payment habits show the bank whether you can afford any extra debt, so you need to prove it with a history of paying your accounts reliably. Missing a single month’s payment or paying even one day late can affect your credit score.

Don’t forget your other accounts – it’s not just your home loan, credit cards and store cards that count. Your credit profile also records whether you pay your contracts such as cellphone reliably.

Try to use as little of your available credit as possible

The bigger the gap between your credit limit and what you owe at the moment, the better it looks on your credit record.

Don’t open too many accounts at once

Every time you open a new account, you’ll have a new payment to add to your monthly expenses. If you have a number of new accounts, that’s a lot of extra payments to manage, so your credit score will go down. A bank won’t allow you any more credit until you’ve shown that you’re managing the new payments responsibly.

It can take some time – up to 2 years – to improve your credit score but it’s really worth persevering. Unfortunately, if you have a judgment against you or an administration order, it takes even longer.

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