How to Improve Your Credit Rating: 7 Steps

If you’re looking for a loan or credit card, your credit rating is going to be put under scrutiny. So, before you head to the bank, it pays to get your rating to the best place it can be. By doing so, it could save you time, stress, and money.

Canstar runs through seven quick tips to improve your credit rating.

Can you get a loan or credit card if you have a bad credit rating?

Yes. Even if your credit rating isn’t as sharp as it should be, you can still access personal loans, credit cards, and other form of finance. However, it will impact your options and/or terms offered. You may find some banks won’t lend to you, forcing you to borrow from alternative lenders. Or, you may find you can get a loan no problem, but it comes with a much higher interest rate.

So, it’s always a good idea to get your credit rating in the best shape it can be before you apply for finance.

Searching for the Best Personal Loan?

If you’re looking for the best personal loan, Canstar’s personal loan comparison tables can help. The table below displays the sponsored unsecured personal loan products available on Canstar’s database for a three-year loan of $10,000 in Auckland, with links to lenders’ websites. Use Canstar’s personal loan comparison selector to view a wider range of products on Canstar’s database. Canstar may earn a fee for referrals.

→Related article: Best Personal Loans for Bad Credit Scores

How to improve your credit rating

Before you apply for credit, it pays to check your credit rating. Firstly, make sure there aren’t any mistakes on the credit report. Then you can start to look at way to improve your credit rating, or credit score. Some ways you can do this are to:

1. Pay bills on time

This may seem obvious, but it is the most important – pay all of your bills on or before the due date. A record of consistent and punctual payments will help considerably towards getting a good credit rating.

It can be tempting to let a bill sit until you receive a follow-up reminder. After all, if you pay the power a few days late they aren’t going to shut your lights off. But leave them too long, or do it too often, and it can impact your credit score. So it’s important you are proactive, and pay your bills on time.

2. Don’t apply for any new credit

Every time you apply for a new credit account or credit card, a personal loan, or potentially even a Buy Now Pay Later service, your credit rating might slowly drop.

It may sound a little ironic, but before applying for new credit, avoid applying for new credit! So if you’re after a car loan, hold off applying for a new credit card for a while.

3. Pay off any outstanding loans and debts

If you’ve got an outstanding credit card balance, or outstanding debts of any kind, pay them off as soon as you can. If they can be called outstanding, you’ve already left them too long.

Not only is this good for your credit score, but for your wallet, too. Interest on credit cards and loans outweigh any interest from savings accounts. And, unless you’re a particularly savvy investor, the interest on your debts could even outweigh any returns on shares or cryptocurrency you may be earning.

There’s no point putting money away into a savings account if you have outstanding debt. Pay it off ASAP.

4. Keep credit card balance low

Just because you haven’t maxed out your credit limit doesn’t mean you should use it. The smaller outstanding balance the better, so even if you can’t clear it all, pay off what you can.

If you’re overspending and adding more and more to your credit card, it will negatively impact your credit score. Which brings us to our next point…

5. Check your debt-to-credit ratio

It’s not just about how much is on your credit card, but how much of your available credit is being used.

For example, if you have $300 on a credit card with a $1000 limit, you’re using 30% of your available credit. Or, you have a debt-to-credit ratio of 30%. If you’re credit limit was $2000, this would be just 15%. The lower, the better.

To help lower your debt-to-income ratio you could up your credit limit. But this should always be done with caution. Because upping your limit can easily backfire if you don’t control your spending.

Also many lenders, such as banks, will mark down your ability to borrow according to your credit limits. If you’ve a $10,000 credit card limit, they will regard that as possible debt, and reduce the amount you’re able to borrow accordingly.

The same goes for any BNPL schemes you’re signed up to, even if you’re not currently using them – they all impact negatively on your ability to borrow money. So best to reduce your debt levels, and your credit limits.

6. Hold onto safe accounts

The longer a credit account is maintained without any negative reports (such as a missed payment), the more it can improve your credit rating.

7. Diversify your credit

If you can demonstrate an ability to handle different types of credit at the same time, it could be an asset to your credit score. For example, a mortgage, a car loan, and a credit card would be an example of diversified credit, as long as you can meet the repayments on all three types of credit.

A mix of short-term and long-term, and fixed payment and revolving credit – all maintained responsibly – would see your credit score improve. That is not, however, a suggestion to take on more debt than you need.

→Related article: How Long Does It Take to Fix a Poor Credit Score?

Compare Credit Cards with Canstar

If you’re currently comparing credit cards, the comparison table below displays some of the low-rate credit cards currently available on Canstar’s database for Kiwis looking to spend around $2000 per month (some may have links to providers’ websites). The products are sorted by Star Rating (highest to lowest), followed by provider name (alphabetical). Use Canstar’s credit card comparison selector to view a wider range of credit cards. Canstar may earn a fee for referrals.

Compare Credit Cards

About the author of this page

This report was written by Canstar Content Producer, Caitlin Bingham. Caitlin is an experienced writer whose passion for creativity led her to study communication and journalism. She began her career freelancing as a content writer, before joining the Canstar team.