How to protect your credit score from avoidable damage

What does protecting your credit score really mean?

It mostly means preventing small slips from turning into lasting entries. Your credit file is built from a few things: the debts you hold, how you repay them, the applications you make and any serious listings. Protecting it is less about clever tricks and more about a handful of dull habits that keep problems from forming.

The good news is that these habits are within reach for almost everyone. None of them needs special products or fees, and most can be set up in an afternoon.

Which habits matter most?

Moneysmart lists three factors behind a score: the amount you have borrowed, the number of credit applications you have made and whether you pay on time. That gives a useful shortlist.

Habit	Why it protects you
Automatic payments	Avoids accidental lateness
Keeping balances sensible	The amount borrowed is a score factor
Applying selectively	Applications are recorded and stay for years
Reading your mail and emails	Overdue notices come before defaults
Checking your report	Catches errors and fraud early

If the table looks obvious, that is the point. Protection is mostly consistency.

How do I avoid missed payments?

Moneysmart says a missed payment is one not made within 14 days of the due date, and that credit products and repayment history cover the last two years. So a payment that is a few days late may not register, but a habit of paying late eventually does.

Practical steps:

• Set direct debits for at least the minimum on every card and loan.
• Choose a due date that follows your pay day if the lender allows it.
• Keep a small buffer in the account that pays the debits.
• Put reminders in your calendar for bills that cannot be automated.

Where a debit fails because of timing, pay it as soon as you notice rather than waiting for a reminder.

How do small bills become defaults?

This catches people who never miss a loan payment. Moneysmart says a default can be reported for debts of $150 or more that are 60 or more days overdue, after the provider notifies you. That threshold can be reached with an unpaid phone bill, an energy account or a final bill from a rental you left.

A default stays for five years according to the OAIC, even after you pay it, though it will then show as paid. Our guide on how long defaults stay on your file goes into the detail. The protective move is to open every overdue notice, call the provider and either pay or arrange a plan before the 60-day line.

What if money gets tight?

Early conversation beats silence. Moneysmart says financial hardship arrangements do not affect your credit score, show only the months they were in place and are removed after 12 months. If you keep to the arrangement, your report shows you as up to date.

Call the lender, explain what has changed and ask about hardship options. Keep a note of who you spoke to and what was agreed. If a home loan is involved and arrears are building, our page on mortgage arrears help and the page on stopping a mortgagee sale explain the wider options. Acting before the situation hardens gives you more choices.

How do I keep balances and limits sensible?

The amount you have borrowed is one of the listed factors, and lenders also tend to count credit limits as commitments when assessing a loan. Habits that help:

• Pay down cards in preference to leaving them at the limit.
• Close or reduce cards you no longer use, after checking the effect with a broker.
• Avoid stacking small loans on top of each other.
• Read the terms before adding a new account.

None of this requires deprivation. It is about keeping your file looking like that of a borrower in control.

How do I guard against identity theft?

Your credit file is a target for fraud. Moneysmart says debts you do not recognise may indicate identity theft. The OAIC says you can ask for a ban on your credit report, which lasts 21 days after you first make the request. Requesting a ban is free, and the OAIC recommends applying to Equifax, Experian and illion, or asking one body to pass your request on.

The OAIC adds that a body must extend a ban if it believes you have been, or are likely to be, a victim of fraud, with no limit on how many times it can be extended. During a ban the body generally cannot disclose your report for credit checks, so legitimate applications can be harder. Time any ban with your broker if a loan is coming up.

How often should I check my report?

Moneysmart suggests checking at least once a year, and the OAIC says you can have a free copy every three months. A sensible rhythm for most people is a check before any major application and a general check once or twice a year. Look at both Equifax and Experian, since they can hold different information. Our guide on getting your free credit report explains how to ask.

What mistakes should I avoid?

• Ignoring bills that arrive by email. Overdue notices often land in junk folders.
• Assuming a small debt is too small to matter. The threshold for a default is modest.
• Paying a repair company. Moneysmart warns against providers that ask for payment or card details.
• Letting an old address go stale. Mail that never arrives cannot warn you.
• Sharing logins and personal documents casually. Treat them as keys.
• Taking out new credit just before a home loan. Both the account and the enquiry show up.

Can I see an illustrative example?

This is illustrative only and not a real person. A renter moves out and forgets a final energy bill that was sent to an old email address. Weeks later the provider sends a notice that is also missed. By the time he checks his credit report ahead of a loan, the account is listed as a default.

A second renter in the same position sets up forwarding, receives the notice and pays within a few days. Her file stays clean. The difference was not income or luck. It was mail, a phone call and a small payment made in time.

How does this fit with borrowing plans?

Protecting your score is a year-round job, not a pre-application scramble. If a loan is on the horizon, leave a gap between your tidy-up and the application so the improvements show on your file. Our guide on improving your credit score goes further on rebuilding, and why your credit score might have dropped helps if something has already shifted.

If your history is already bruised, you still have options. Our page on bad credit personal loans shows how we look at those cases.

What can I do this week?

• Set up automatic payments on every credit product.
• Update your address and email with each provider.
• Order your reports and read them.
• Clear any small overdue bills.
• Decide whether a ban is needed if anything looks suspicious.

If you want a second pair of eyes on the file, get in touch through our apply page. Ownright Custom Finance works Australia-wide and Trevor Scott’s team has years of experience with all kinds of histories.

Ready to borrow with a healthy file?

Sounds like you’re looking to get a loan, and you are protecting the file that will support it. We’re the lending experts in matching healthy and not-so-healthy credit files to the right lender, so click here to see if you qualify. We can look at what is available whenever you are ready.