It’s never too late to improve your credit score, and the start of a new financial year is a perfect time to begin. Here are 5 actionable steps to help you build positive long-term financial habits.

1. Set clear financial goals

Review your current financial situation. Track the money coming in-and-out to identify if you’re spending more than you earn. If so, create a budget to better manage your income and expenses. The ‘keep it simple’ (Kiss) acronym works well when it comes to budgeting. The simpler the budget, the higher the success rate. If your budget relies on having to track every little expense every day of the week continuously, you might soon lose interest.

Set small, achievable financial goals for this year. Give yourself some easy wins and use these as motivation for longer-term goals. Your budget will help you avoid impulse spending and keep you accountable.

2. Pay bills on time

Lenders look at your repayment behaviour to help determine credit risk. From your credit report they can see whether you have paid the minimum amount required, how frequently you make payments on time or how overdue the payment is.

Paying your credit card or loan account more than 14 days past the due date can negatively affect your credit score. Even if the dollar amount is small, late payments can still have an impact.

While one late payment followed by on-time payments is unlikely to have a significant effect, it’s a different story if you keep making late payments. Consistently paying on time will help maintain and improve your score. Set up automatic payments or reminders to help you stay on track.

3. Reduce your debt

High debt levels or a high debt-to-credit ratio can hurt your credit score. A debt-to-credit ratio refers to the amount you owe across all credit accounts compared to the amount of credit available to you. Paying only the minimum on credit cards prolongs debt due to the ongoing interest payments.

If possible, pay more than the minimum. Consider the snowball method: focus on paying off one debt while maintaining minimum repayments on others. Once the first debt is repaid, the money that was budgeted for minimum repayment can now be used to pay down the next debt. And the next. Knocking over debt this way can motivate you to keep reducing your debt.

Making regular repayments also shows lenders you’re taking control of your financial future and acting responsibly with credit.

4. Choose reputable credit providers

Each time you apply for credit, a hard enquiry is recorded on your credit report. Lenders can see the type of credit provider you choose, the type of credit you applied for and the date you applied.

To avoid an impact to your credit score, opt for reputable, reliable lenders and avoid high-risk options like payday loans. Payday loans are small loans with high fees that must usually be repaid within a short term. When it comes to calculating risk factors, the weight placed on a payday loan is greater than other types of loans and may influence a lender into thinking you’re a risky borrower.

Limit your credit enquiries and space your applications out over time. Too many hard enquiries in a short period of time may suggest to lenders that you are in financial stress because you are shopping-around for credit.

5. Monitor your progress

Regularly check your credit report to track your progress and spot signs of identity theft, one of the fastest-growing crimes in Australia. Identity theft occurs when someone steals your personal information and uses it to open credit accounts in your name, such as credit cards, utility and bank accounts.

If you find out early enough, you could have new cards issued and passwords reset, leaving the whole experience little more than an inconvenience. But find out too late, and the impact can be huge. Your savings could be stolen, bills racked up in your name, fake loans taken out – all causing an emotional and financial toll that can take years to recover from.

At Equifax, you can check your credit history for free once every 3 months, or subscribe to our Equifax Credit and Identity Protect services to monitor activity in your credit report. Our service includes dark web and social media monitoring powered by Norton™, which monitors hard-to-find dark websites for your personal information and scans popular social platforms for suspicious activity in accounts. Receive immediate alerts if your data is compromised.