If you know a thing or two about personal finance, you’ll likely be aware that typically only those who have excellent credit scores are offered the most competitive credit products.
This is because excellent credit borrowers have a record of responsible borrowing behaviours and a history of positive credit events. Understandably, lenders prefer borrowers who fit this profile as they pose a lower level of risk. So, they often reward them with lower interest rates.
This might lead you to wonder what you need to do to get an excellent credit score – or better yet, a perfect credit score.
First, it might be helpful to learn what a perfect credit score is.
In Australia, there are two major credit reporting bureaus: Experian and Equifax. Both bureaus have a credit scoring system that’s divided into five tiers. Equifax grades credit history between 0 and 1200, while Experian grades it between 0 and 1000.
| Credit score tiers | Experian | Equifax |
| Excellent | 800 – 1000 | 833 – 1200 |
| Very Good | 700 – 799 | 726 – 832 |
| Good | 625 – 699 | 622 – 725 |
| Fair | 550 – 624 | 510 – 621 |
| Poor/Below average | 0 – 549 | 0 – 509 |
Source: Experian.com.au, Equifax.com.au.
Essentially, a perfect Experian credit score is 1000, and a perfect Equifax credit score is 1200. Though there is little evidence to say that a borrower with a credit score that falls a few points below perfect will be at any kind of disadvantage.
Generally, most borrowers who fall within the “excellent” tier will have a similar opportunity to secure competitive credit products. Keep in mind, however, that there are other eligibility factors that ultimately determine what products and interest rates might be available to you.
There’s certainly no harm in striving for a top score, however, and in doing so you’ll likely limit the risk of letting your score slip into a lower tier.
While there is no way to guarantee a perfect credit score, to keep the odds in your favour there’s not much room for error. Which means the more diligent you are with practicing positive credit behaviours, the better your chance of achieving a perfect credit score.
The dos and don’ts of achieving a top-tier credit score
- Do: pay your bills on time
A track record of regular on-time payments allows lenders to see that you are a responsible borrower who stays on top of debts. It could also help counteract a negative event, such as a missed payment, in the unfortunate situation that it may occur.
- Do: pay off your credit card balance each month
Using your credit card as a financial tool and paying it off in full each month not only limits the amount of money you’d otherwise spend on interest charges, but can also work in your favour when it comes to your credit file.
Your debt-to-credit ratio represents the amount of credit you’re using compared to the amount available to you – such as your credit card limit. Having a maxed-out credit card can indicate to lenders that you’re not on top of your debts and aren’t as financially responsible as they might hope.
- Do: regularly check your credit file
Unless you check your credit file on a regular basis, you won’t know if there are any discrepancies that you need to dispute. And after all, if you’re working hard to build your credit score, the last thing you want is an incorrectly recorded event to hinder your progress.
You can check your credit score for free by visiting RateCity’s credit score hub.
- Don’t: miss payments
A missed payment can be recorded on your credit file if you fail to correct it before the end of your credit provider’s grace period – generally up to 14 days. If you make the payment between 14 and 60 days after the due date, it is considered a late payment and can be recorded on your file as such.
If 60 days pass and you still haven’t rectified the missed payment, it is considered a default, which can have a significant impact on your credit score. While a default will only be recorded on your report if you miss a payment of more than $150, it can remain on there for five years.
Keep in mind that even if you’re only a few days late with your payment, you will typically still be charged a late fee despite it likely not impacting your credit file.
- Don’t: apply for multiple credit products at once
A borrower who submits multiple applications for credit at once can be seen by lenders as desperate for cash, which typically doesn’t go hand in hand with being financially responsible. Instead of applying for multiple credit products in the hope that one will be approved, consider doing your due diligence and checking the lending criteria to ensure your chances of approval are strong before applying.
If you do apply for credit and find you have been rejected, consider waiting and working on your credit score before applying again.
