Remember back at school when you got a report card that told you, or perhaps more importantly your parents, how well you were performing in each of your subjects? Well, your credit score and credit report are used by lenders to see how well you are doing managing your finances.
If you are looking to borrow money for your first or next property purchase, it’s a good idea to know how the banks will determine what sort of a risk you are – in other words, are you likely to be able to repay the loan?
Equifax (formerly known as Veda) keeps credit information on around 18 million Australians and 1.9 million Australian companies. You can request your credit score from their website free of charge and it will be sent to you within ten days. Alternatively, you can subscribe to their monthly ‘My Credit Alert’ for around $80 p.a. and get a credit score within 24 hours.
There are other websites that offer a free credit report in exchange for going on their mailing list to receive marketing offers (of course you can always unsubscribe from this after you have received your score).
What does your credit score mean?
According to Get Credit Score you are scored as a number between 0 and 1,200.
This score is compiled by looking at things like the number of credit enquiries you have made in the past five years, your repayment history, adverse events, credit limits, length of credit history, payments to utility and telco providers, and other personal information.
BELOW AVERAGE (0-509)
If you score in this range you are considered to be in the bottom 20% of Equifax’s credit-active database.
In this category, you are more likely to incur an adverse event such as default, bankruptcy or have a court judgement against you in the next 12 months.
If you find yourself with a score in this range, then it’s vital that you request your report and review it to find out if there are any errors; if you find any, contact your credit provider immediately. If you are suffering financial hardship, don’t just stick your head in the sand and hope that all of your problems will magically go away. You are far better off getting on the front foot and working with financial professionals who can help to potentially restructure your debt or even trigger bankruptcy proceedings, if this is the best or last solution.
In this category, you are likely to incur an adverse event such as default, bankruptcy or have a court judgement against you in the next 12 months.
If you find yourself with a score in this range, then do you understand why you are here? Have you been through multiple finance applications in a short time? Have you fallen behind in paying your recurring bills? Consider undertaking a voluntary payment plan with your credit provider and/or make best use of direct payments options each payday for example, to get your credit history back on track.
In this category, you are less likely to incur an adverse event such as default, bankruptcy or have a court judgement against you in the next 12 months.
If you find yourself with a score in this range, then perhaps it’s time to look at consolidating expensive debt (e.g. credit cards, personal loans, etc.) into lower interest loans. You may also be able to negotiate better rates or terms on your existing credit cards due to your good record.
VERY GOOD (726-832)
In this category, you are unlikely to incur an adverse event such as default, bankruptcy or have a court judgement against you in the next 12 months.
If you find yourself with a score in this range then you, or your broker, might be able to negotiate better rates and terms on your existing loans as well as any loans you plan to take out in the future.
In this category, you are highly unlikely to incur and adverse event such as default, bankruptcy or have a court judgement against you in the next 12 months.
You are doing a great job of managing your finances, so use this glowing track record to negotiate better deals on your loans, or better yet work with an experienced broker to see what other rewards, rates and benefits you might be entitled to due to your excellent record.
How can I use my credit score to make me more credit worthy?
Firstly, knowing what your credit score represents is an important first step. Knowledge isa powerful tool.
Make sure you pay all your bills on time. It is especially important if you move house that you let all your water, phone, electricity and gas providers know so that your bills can be redirected to your new address. It is staggering the amount of people we have helped who have negative scores on their credit reports simply because they moved and never received, and therefore never paid, the bills.
Reduce the risk of identity theft. By receiving regular updates on your credit score, you will be quicker to identify if anyone is using your identity to apply for credit or doing something illegal in your name.
Improve your chances of getting the loan you are seeking. If you have some negative things on your credit score, you may be able to address them before applying for further loans.
Avoid applying for credit when you don’t need it. This is where working with an experienced mortgage professional is worth their weight in gold. Some inexperienced brokers will just ‘shop’ your loan all around town, hoping to get you a loan. Credit providers will usually take a negative view of someone who has made a relatively high number of credit enquiries in a short space of time.