Credit is a ubiquitous part of everyday life. Used to obtain a home loan, vehicles, appliances and more, your credit score impacts your ability to access banking services and negotiate better deals.
While “credit” may seem like an amorphous term, it’s also a very real number with tangible impacts on daily life. Finance providers use your credit score or credit rating information to decide whether to give you credit or lend you money. If you are approved for a loan, your credit score may impact the interest rate you receive and the terms of your loan.
It’s important to be aware of your credit score before moving forward with any major financial decisions and before you start applications, especially when it comes to large ones like mortgages.
But the good news is that even if your credit score isn’t ideal, it can be improved. Let’s take a look at how credit impacts your access to finance, how to check your credit rating and how it can be improved too.
Understanding the types of credit rating
In Australia, credit ratings are calculated by a number of financial factors. A few of these include:
- Number of credit cards owned
- Credit card spending limits
- Past and present debts
These factors — along with a number of others — are used to calculate your final credit score. This is usually determined by the bank, lender, or financial institution in question, and is aggregated from the three major credit bureaus in Australia.
Credit ratings in Australia generally fall between 0 and 1,200 and are categorised into bands — low, fair, good, very good, excellent. The lower the score is, the less likely banks will authorise credit purchases. Lenders will be more risk-averse to borrowers with lower scores. They may offer borrowers smaller loans with higher interest rates. In contrast, borrowers with higher scores appear less risky to lenders. Borrowers may be offered higher loan amounts with lower interest rates. The exact figure that indicates an “excellent” credit rating in Australia varies slightly from institution to institution, but broadly speaking a score of 800-1200 is considered to be in this category.
How to check your credit score in Australia
Regularly monitoring your credit score allows you to keep a close eye on fluctuations, as well as catch identify theft or fraud in its earliest stages. This process will help you make the most of your money while protecting your bottom line.
If you are uncertain about how to find out about your credit score in Australia, you can consult with one of the major third-party credit check providers such as Experian, Illion or Equifax. Credit report providers expect some form of identifying documentation, as well as your name, birth date, and driver licence number. Once your credit report has been successfully requested, you can expect to receive your credit report within a couple of business days.
There is a common misconception that checking your credit score could negatively impact it. However this is false and you can request your credit report often as you need. There is no penalty for vigilance in the realm of credit scores.
Can you restart your credit score?
There is currently no way to “restart” your credit score in Australia, per se. Unless the information on file is outdated, incorrect or inaccurate, you will not be able to hide or remove any reported details. Regularly monitoring your credit is the best way to keep your score from falling below your desired bracket.
Beware of credit repair companies that claim they can remove information to restart your credit score. Information that is correct, even if you don’t like it, cannot be removed.
6 ways to improve your credit score
If you’ve requested a credit report and are not happy with the result, there are number of things you can do to improve your credit score and become more attractive to lenders. As with most elements of financial wellness, credit repair starts with small steps in the right direction. While they’re not overnight fixes, they can help improve your credit score over time when used diligently.
1. Take out smaller loans and make regular repayments
This helps to demonstrate that you are a trustworthy borrower and makes you more attractive to lenders.
2. Reassess your number of credit cards and spending limits
If you’ve got less access to funds, it’s more difficult to get into bad debt. This is also an opportunity to look for ways to cut back on your overall spending.
3. Use debt consolidation and refinancing solutions carefully
Although these can be good financial strategies, they can also have negative effects on your credit score if used over an extended period of time. It’s always worth seeking financial advice before opting for this kind of solution.
4. Pay off your mortgage and bills before the due date
When you’re continually making late payments on your bills, your credit score can take a hit in the process.
5. Limit the number of credit applications you make
If you’re declined for a loan or credit it may negatively impact your credit score.
6. Check your credit rating regularly
Credit checks can help spot irregularities, such as debt that has been paid off but not yet removed from your credit score calculations. We’d suggest every Australian do this at least once a year, whether or not you’re actively seeking loans.
Rebecca is passionate about promoting the positive impact of quality financial advice on personal wellbeing. Read her full bio here.
