Case study: How to improve a below average credit score

If you have a below average credit score, don’t panic. There are things you can start doing today to improve your score. Information on your credit file only lasts for a limited period of time, meaning negative data affecting your score will drop off over time–giving you the chance to improve it. 

Understanding the credit score ranges

Your credit score isn’t a static number. It changes over time depending on the information that’s contained in your credit report.

There are five credit score bands that your score can fall into.

  • Excellent: 800-1,000
  • Very good: 700-799
  • Good: 625-699
  • Fair: 550-624
  • Below Average: 0-549

A below average score means that you’re more likely than the average person to have an adverse event being listed on your credit report in the next year.

A real-life example of someone with a below average score

Let’s look at Scott. During his younger years, he didn’t have much of an understanding about his finances. 

He was working as a chef and received payment in cash. So it was not uncommon for his pay for the week to never make it into his bank account.

During this time, he defaulted on his car loan and missed paying his electricity account on time. 

He was eventually able to make up the car loan default and get back on track with his payments, but the default stayed on his credit report for five years.

This meant he ended up with a below average credit score. Over time as he got his finances on track, he paid off his car, which could be looked at favourably.

Knowing he had a low credit score (and he already had a car loan and credit card) he knew his options were slightly limited if he was to look to purchase a home with his partner in the future. 

So he decided to take more interest in his financial situation and make more considered choices. 

Several years later, he now has a credit score in the very good range. 

What may have caused you to have a below average score

In the case study above it was defaults on several payments that caused the below average score. 

But there are other circumstances which could see you fall into this credit score band. 

  • A mistake has been made on your credit file which you will need to have fixed. Errors could range from a simple mistake such as a duplicate entry or incorrect details, or it could mean something more serious like your identity being stolen.
  • Defaulting on a credit account
  • Submitting multiple credit applications in a short period of time
  • Having excessive open credit accounts
  • Having too much unsecured credit
  • Not paying a bill and having it go to a debt collection agency
  • Having a combined credit limit that is viewed as being too high
  • Being declared bankrupt.

How you can improve a low score

The best way to improve your credit score is to look overall at your current financial situation and see how you can improve it. In the past, only negative events such as defaults and bankruptcies were recorded on your credit score. 

Now positive credit reporting is rolling out, which means information such as your repayment history will be seen on your credit report. This is helpful for those with below average scores as lenders will be able to see you had a default several years ago but have been good with making payments since and have changed your ways.  

Here are some practical ways you can move your score up to get you in a good credit position and give you the best chance of being approved for future credit.

  • Limit your applications for credit until you are in a better credit position
  • Make repayments on time. If you’re worried that you can’t make a payment, let your lender know. You may be able to modify your payment terms and you won’t have to worry about defaulting
  • Pay your rent and bills on time (setting up a direct debit can help)
  • Pay your mortgage and other loans on time
  • Pay your credit card off in full each month
  • Lower your credit card limits
  • Only borrow money when you need it. Too many applications for credit can reduce your score, so make sure you do your homework by researching credit cards at Credit Card Compare to make sure you meet the eligibility criteria.

Track your credit score regularly to see the progress you are making. 

With our free credit score tool, we can notify you each time your score changes.