First up, let’s recap what your credit score is and why it matters.

Your credit score works like a rating that gives lenders an idea of how well you’ve managed debt in the past.

The ‘score’ is a figure based on your credit record – a collection of information about you showing how well you’ve handled credit repayments; whether you have unpaid or overdue debts; plus details of your other applications for credit regardless of whether or not they were successful.

Your credit score condenses all these details into a single score, allowing lenders to gauge the sort of credit risk you could be. That makes it an important number that can shape whether you are approved for a loan and even the rate you pay. Having a high credit score can mean big savings on loan interest rates – and that should be a big incentive to keep your credit score in good shape.

Find out your credit score for free

If you’ve never checked your credit score, head to websites like Credit Savvy. Just type in a few details, and you’ll get your score on the spot.

If it turns out you have a bad credit score, it’s time to take action. There can be a number of reasons why your credit score is low, and you need to get to the bottom of it.

The first step is to get a copy of your credit record so you can see what lenders see. It’s not hard, and simply reviewing your credit record won’t impact your credit score.

Request a copy of your credit report from credit reference companies like Experian, Equifax, illion (formerly Dun & Bradstreet) or the Tasmanian Collection Service if you live in Tassie. Most give you one free report annually.

Once you have your credit report, take a good look through it. There are a number of reasons why you may have a low credit score.

Too many applications with different lenders

Having multiple applications on your credit record can knock as much as 200 points off your credit score.

This type of information stays on your credit record for up to five years so if you’ve applied for credit with other lenders in the past discuss this with your Aussie Broker, and aim to keep your credit score high by only applying for the loan that suits your needs.

Identify fraud

If you see loan applications on your credit record that look odd or unfamiliar, it could be an early warning sign that you’ve been targeted for identity fraud. This is not something to take lightly.

If it appears someone has tried to take out credit in your name, immediately contact the credit agency, your bank and other financial institutions, and the police to report the fraud.

Mistakes in your credit record

A bad credit score could be the result of errors, like a repayment being listed as unpaid when, in fact, you’ve already paid it.

If that’s the case, explain the situation to the credit reporting agency to try and have the entry corrected. If you’re applying for a loan, talk to your Aussie Broker about the error.

You are behind with debt

Paying bills and loan repayments on time is a surefire way to boost your credit score. On the flipside, falling behind with debts and bills can negatively impact your credit score.

If you’re struggling to keep up with repayments, talk to lenders as soon as possible to organise a manageable payment plan. Or speak with your Aussie Broker about refinancing your debt, or consolidating a number of debts into a single, easy to manage loan. Improving your overall financial wellbeing, including simple steps like lowering your credit card limit, can help to increase your credit score.

Personal bankruptcy

Your past can come back to haunt your credit score, and personal bankruptcy can do some serious damage. But even this may be manageable.

Records of bankruptcy can stay on your credit record for five years, so it may pay to wait until after the five-year period is over to apply for a loan. Or, aim to discharge, close or complete the bankruptcy action sooner as this may cut the length of time your credit record is impacted.

The bottom line is that having a low credit score doesn’t have to be the end of the road for your goal of home ownership. It can just mean getting there via a different approach.

If your credit score looks low, or lower than you expected, speak with your Aussie Broker to learn more about what you can do to push your score higher.