There are a lot of people who don’t know what a credit score is. According to a survey by finder.com.au, 12.3% of people have no idea what it is and how it affects the ability to borrow money.
What is a credit score?
A credit score or rating is a score that shows your financial behaviour and your credit enquiry history.
The higher the score, the more credit-worthy you are, and… the lower, well, you might find you have trouble getting finance. If you find out your credit rating through Veda (Equifax), you will receive a number between 0 – 1,200 (or I find it out for you when we are doing your loan application).
A credit score also influences how much money a lender will give you access to, and the interest rate and other terms on offer. Your credit score is a bank’s risk assessment tool.
Credit providers – banks – use the info from your credit report to work out if you can afford a loan or if you are likely to repay it (they do like getting their money back).
What credit score should you aim for?
The higher the better, because your credit score affects your access to better loan and credit card deals. The credit score bands are as follows:
Excellent: 833 – 1,200
Very Good: 726 – 832
Good: 622 – 725
Average: 510 – 621
Below Average: 0 – 509
How can you ensure your credit score comes up trumps.
- Paying utility bills
Bills are a part of everyday life. We can’t escape them! From electricity to internet, mobile phone to gas, your household bills are probably coloured by these everyday services.
But did you know that paying your providers on time and in full can make you look like a more reliable home loan applicant? If you miss a payment, a telco or other utility company can put a little mark on your report noting that the payment is overdue – but they also need to update the entry to ‘paid’ once you’ve caught up.
So why not get ahead of the curve? Stay on top of your bills and there’ll be smooth sailing ahead. Bills of more than $150 overdue by 60 days or more looks bad.
- Keeping credit cards low
No, this doesn’t mean keeping your cards underground (although, at Christmas, that does seem like a good idea!). Your history will show all the times you’ve taken out a new card, as well as the balance on your existing ones. If you’re a dab hand at paying the minimum amount on your cards every month, this will give your credit worthiness a leg up but banks want to see you can get ahead and manage your money. Everything you show the bank needs to be clean or you present risk to them.
- Keep your application count down
Applying too often for credit cards or loans can seriously damage your credit rating. If you get declined, ask why and see how you can fix it. Do not go on an application spree. If you keep applying and getting rejected, this reduces your score. Even if you do not get rejected all of these online and phone enquiries get listed on your credit report. It can appear to the bank that you are desperate for money which may not be the case but this is how it appears.
- Balance transfer
Here is one you may not realise. When you get ta 0% balance transfer and you do not pay it off by the end and then you move banks can really stick out to banks as they can see the trail of credit card application enquiries. DO not be tempted to do the balance transfer shuffle – going from 0% interest balance transfer to the next. You may feel you are saving money but you are doing your credit rep damage.
- Check your score
It is not true checking your credit history will affect your rating. Like all things, what gets measured improves.