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4 steps to perfect your credit health

Nearly half (44 per cent) of millennials don’t know the difference between their credit score and credit report. Photos: Getty

Until you buy your first car or your first home, the state of your credit health may never even cross your mind.

So it’s no wonder that only 1 in 5 Australian millennials feel confident about their understanding of what a credit score is, and that nearly half (44 per cent) don’t know the difference between their credit score and credit report, according to consumer education website CreditSmart.

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“Millennials are at a point where they may be looking to make their first milestone purchase,” said Australian Retail Credit Association credit reporting expert Geri Cremin.

“It is really important for them to get on top of their credit health so when the time is right, they’re in a good position to make the big-ticket purchases.”

Analysis of credit score platform CreditSavvy’s member base has found 25-34 year olds have, on average, the lowest credit score (624) after 45-54 year olds (659) as well as those 55 and older (737).

But it’s not all bad news – new laws around credit reporting mean that banks and credit providers will have to start reporting positive credit history, not just the negative.

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This means that millennials’ lower credit scores isn’t so much due to bad behaviour as it is to lack of history, said CreditSavvy product director Leo Hillary.

“The good news is that with comprehensive credit reporting, younger Australians will have more capacity to demonstrate their credit worthiness simply by making their loan repayments on time each month.”

What can I do to improve my credit health?

1. Start with the basics – and then play it safe, advises Cremin.

“You’ll start creating credit history when you apply for a credit card, a post-paid phone or utility account (as long as it’s in your name).

“But it’s important to make sure you only take out credit that you can afford as not paying will have a lasting effect on your credit health,” she said.

2. Pay your bills on time.

“Making repayments on time is the best way to build your credit health. Even if it’s a small loan or small credit card, as long as you make repayments on time, you’ll start building a strong repayment history, which shows potential lenders that you can manage credit responsibly,” Cremin said.

That credit history will work in your favour later, when you need to take out a larger loan for a bigger purchase.

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3. Catch up on missed payments.

Your score creeps up the longer you pay bills on time. “Older credit problems count for less, so poor credit performance won’t haunt you forever,” according to the CreditSmart website.

“The impact of past credit problems on your score fades as time passes and as recent good payment patterns show up on your credit report, credit providers will see that you are managing your credit well.”

4. New to managing credit? Don’t open too many new accounts.

“New accounts will lower your average account age, which will have a larger effect on your scores if you don’t have a lot of other credit information,” the website said.

“Also, rapid account buildup can look risky if you are a new credit user.”

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