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Understanding your credit score

Learn why credit scores matter, how they work, and the pitfalls to avoid. Discover how to check your credit score and what to do if something seems off.

In today’s world, credit plays a major role in our daily lives.  Whether it’s covering rent, buying a home or car, or managing day-to-day expenses, we often find ourselves relying on credit.  But have you ever wondered how companies decide it you’re a safe bet to lend to?  That’s where your credit score comes into play.

What is a credit score?

Simply put, a credit score is a numerical representation of your creditworthiness.  It’s a report card for your financial behaviour, typically ranging from 0 to 1,000 or 1,200.  While different agencies may use different scoring systems, the general rule is simple: the higher the number, the better your chances of getting approved for credit.  For example, many lenders may require a minimum score of 600 to meet their lending requirements.

Why is it important?

Your credit score is your ticket to the financial world.  Whether you’re eyeing up a mortgage, car loan, or even a new credit card, lenders use this number to determine how risky it is to lend you money.  A good credit score can open doors to lower interest rates and better financial opportunities.

How is your credit score calculated?

In the background, credit score companies are crunching numbers based on your financial history.  Essentially, they’re tracking how responsible you’ve been with borrowed money.  They take into account:

  • your past and present debt, including any hiccups in repaying (including some buy now, pay later plans)
  • loans (including number and type of loan enquiries) for various reasons, including things like home loans, mobile phone plans, personal loans and car loans
  • your credit and store cards
  • current credit limits
  • your account opening and closing history
  • utilities connections and payment histories; and
  • any court writs, default judgments, or bankruptcy records

What can you do to achieve a great credit score?

You can help to achieve and maintain a good credit score by following these easy steps:

Pay your bills on time, every time.  Late payments can negatively impact your credit score.  Consider setting up automatic payments to help you stay on top of your bills.

Only apply for loans and credit card limits that you can use and repay.  Multiple enquiries for facilities that you don’t use can adversely affect your credit score.  In addition, having credit card limits that you don’t use will reduce your borrowing capacity – lenders take the limit into account, not the balance.

Consolidate your loans and credit cards into as few accounts as possible.  Simplifying your credit facilities into one or two repayments makes them much easier to manage and repay.

By following these steps, you can improve and maintain your credit score and increase your chances of being approved for finance.

Can you repair your credit score?

The good news is your credit score isn’t set in stone.  It’s a dynamic reflection of your credit situation at the time of the check.  However, a single slip-up can lead to a dip in your score.  To keep it healthy, always pay your bills and make loan repayments on time.  And avoid taking on too much financially.  Many lenders may require a period of 6 – 12 months of good credit history to rectify any past slip-ups or credit issues.

If you can’t pay a bill

If you’re having trouble paying a bill, there’s no need to panic.  Talk to the company about it.  Many are willing, and some are required, to help with payment plans or other solutions.

While a payment plan is a responsible step, it’s important to note that some lenders may still report the initial payment as late.  The key is to talk to the company you owe money to, explain what’s happening and find a solution that minimises the impact on your credit score.

How to find out your credit score

Curious to know what your score is? It’s easy to find out.  The three top credit agencies in Australia are Experianillion and Equifax.  They’ll ask you to upload your ID along with some basic info, including your name, date of birth, and contact address.  Within a short period of time, ranging from as little as minutes to hours or sometimes several days, you should have your credit score report in hand.

Each agency may have different information about you, so to get a full picture, we recommend that you request your credit report from the three agencies above at least once per year.  In addition, we recommend that you put an alert on your file to notify you in the event of a fraud, scam, or other change.

What to do if something isn’t right

Did you spot a hiccup in your credit report?  Don’t panic.  Mistakes happen.  If you think something isn’t right, dispute it with the credit reporting agency.  They’ll investigate and correct any errors.  And if you suspect identity theft and/or scams, act swiftly – contact the National Anti-Scam Centre (ScamWatch), Police and the fraud department of credit providers to investigate the issue on your behalf.

Things to be careful of:

Make sure to regularly check your credit report for errors or suspicious activity.  Scams, identity theft and inaccuracies can harm your credit score.  By staying on top of your score, you can catch and fix issues early on.

We’ve got your back

As your local, customer owned bank, we’re here to help.  If you’re worried abour your credit history or have any questions, swing by our Cairns branch or call us on 4031 4460 for a chat.

Disclaimer: Please note that these are general guidlines for information purposes only.