Case study: How to improve a fair credit score

If you have a fair credit score this may increase your difficulty in accessing credit. But there are actions you can take today to start improving your score. The good news is your score changes over time and information recorded on the report only lasts for a limited period before it drops off and stops affecting your score.

Understanding the credit score ranges

Your credit score isn’t a static number. It changes over time depending on the information that is 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 fair score means that you are more likely than the average consumer to experience an adverse event in the next year.

A real-life example of someone with a fair score

You’re not alone in starting out with a fair score. In fact, it can often happen to people who least expect it.

Take Matt for example. He lives in Sydney and has a higher than average salary working in sales. He applied for a new credit card and was knocked back, much to his surprise, as he was confident he had the income and assets to service the credit card. So he knew something else had to be the cause.

After checking his credit report, he found a personal loan default on there from when he missed a payment while he was trekking Europe some years ago.

Generally, Matt had good financial sense, but it was simply a case of ‘out of sight out of mind’, while he was enjoying his holiday, that saw the default recorded on his credit report.

In the end, he was still able to get a credit card after doing some research and getting some advice on which card would be best suited to him given his current circumstances.

Different financial institutions have different criteria they use when assessing you for a credit card. 

Knowing your credit score can help you to have the best chance of being approved.

What may have caused you to have a fair score

In the case study above, it was missed payments that caused the fair 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 fair 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 good repayment history will be seen on your credit report. This is helpful for those with fair scores as lenders will be able to see you had a default several years ago but have been good with making payments since. They will know it was just a once off, or you have changed your ways.

Here are some practical ways you can move your score up to get you in a good position to 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.