They say your credit score is more important than your actual reputation, and this is true when it comes to dealing with the banks. Even your mobile phone provider relies on looking at your credit score to determine if they’ll approve you for that new iPhone.
However, most people aren’t keeping tabs on their credit scores. In fact, you may have never thought to look yours up!
While this is commonplace, you could be doing yourself a disservice by not doing your due diligence when you’re applying for credit products or services.
Let’s explore the real reason you need a credit score, and why it literally pays to keep up to date with yours.
The real reason you need a credit score in Australia
Say you needed to borrow money to finance a holiday, home renovation, or even purchase property. The lender you are seeking funds from needs some reassurance that you are likely to pay off your debt. Gone are the days of relying on a handshake agreement – your bank wants to see the data.
This is where your credit score comes in. A credit score is a number that reflects your ‘creditworthiness’. Put simply, it is a number that shows how well you repay your bills and debts. A higher number shows banks you have a better chance of making repayments on time.
According to the banks, the better your credit score, the better your relationship with money, and the more likely you’ll pay off that home renovation loan. Banks are really just looking for a sign that you are not a “risky” borrower – aka you will meet your repayments.
And they may reward you generously if you are not a risky borrower.
Greater risks for risky borrowers
Having a low credit score could be a sign you have a history of late payments, defaults, and even bankruptcy. In this instance, a bank or lender would see you as a ‘risky’ borrower.
The impact of this – and why credit scores are so important – is that you will likely not be approved for any credit products with these adverse events on your credit history.
You could be rejected for opening accounts any the following:
A mobile phone plan
An energy plan
A car loan
A credit card
In some cases, if you’re applying for a rental property, the agency could also look at your credit score to determine if you’re a suitable candidate. If your credit score was low, you may be rejected for the property.
If you are not keeping up to date with your credit score, and it falls into a lower range, you may apply for the above products and be rejected. This is dangerous, as any applications you make and rejections you receive will be recorded on your credit history. Multiple applications and rejections at once can hurt your credit score further.
Bigger benefits for ideal borrowers
Having a high credit score that sits in the ‘excellent’ category, indicates you’ve had a long history of making repayments for bills and other lines of credit on time. You may qualify for generous perks and advantages if you have a high credit score.
Banks, lenders and service providers ideally want customers that have great credit scores. This means their company is exposed to less credit risk – aka more customers will pay them on time, so they can keep growing.
If you have an excellent credit score, a lender may offer you a more competitive product to entice you to join them. This could look like:
Lower interest rates on home loans or personal loans
Lower fees on credit cards, home loans or personal loans
Bigger sign-up bonuses, such as cash back deals, frequent flyer points or other affiliated rewards
Access to helpful features, such as an offset account or redraw facility.
If you don’t know what your credit score is, you could be missing out on more competitive products and deals because you simply aren’t aware you qualify for them!
Where do you find your credit score?
In Australia, there are three major credit bureaus that keep a record of your credit information; Experian, Equifax and illion. You can request a free copy of your credit history with these bureaus once every three months.
However, you can view your credit scores with these bureaus at any time, using helpful third-party websites and apps. For example,RateCity’s Credit Score app shows you your credit score with both Experian and Equifax.
Keep in mind that your credit score may differ for each bureau, due to their different credit score scale (Experian and illion grade 0 – 1000, Equifax grades 0 – 1200), different internal assessments and time frames they check your credit data.
But, generally speaking, your credit score should fall into the same category across all bureaus.
How can you grow your credit score?
Younger Australians and new residents/visa holders might struggle to gain approval for credit products – not because of poor payment behaviour, but because they simply have not built up a credit history.
The good news is that it is possible to grow and improve your credit scores with these bureaus – it just may take a little time and patience.
Steps to growing your credit score
Start small. Ask to join your household’s energy plan, then move on to your own phone plan.
Grow a healthy nest egg of savings. Positive information should now reflect in your score.
Check your credit history for any mistake, such as family members’ credit history attached to your account. If you can have these errors removed, it could boost your score.
Limit the amount of loan or credit card applications you make.
Pay off your existing debts, including outstanding credit card balances.
Avoid late payments as best you can.
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