Most people don’t think twice about their credit rating, also known as credit score, until it comes time to apply for a home loan. However, it’s something that a lender or bank will consider when assessing an application for credit.
What is a credit score?
Your score, is usually a number between 0 and 1,000 or 1,200. It’s calculated based on your financial history and provides a bank or lender with a guide to how much of a “credit risk” you could be.
The credit score takes into consideration:
- Any previous loans and your repayment history
- Your ability to pay bills on time
- Your current debt
- Any credit applications in the last five years
Your credit rating predicts how likely you are to pay back a loan on time and the higher your “score”, the better.
Having a higher credit score could improve your ability to obtain finance approval for a home loan, personal loan or a new credit card.
What is a good credit score?
Each credit reporting body or credit provider will calculate ratings using their own formulas and the information that is available to them. This means your score could be different depending on who is looking at it.
The average credit score in Australia is about 695*, but this can vary between different age groups and genders.
Generally, a good credit score is 625 or higher*. The higher the score, the better, no matter which credit reporting agency is used.
How to check your credit score
The major credit reporting bodies, Equifax, Experian and Illion, can provide you with a free credit report every three months.
Other organisations, like Finder, may provide your credit score but not a comprehensive report.
Before you start the process, ensure you have some different forms of ID ready to verify your identity.
What does a credit report look like?
Each credit reporting company is different, but reports will generally include:
- Your personal information.
- Your credit score or rating in a scale ranging from “below average” to “excellent”.
- Details about the credit accounts that you have had in the last two years including credit cards and loans.
- Your repayment history, including whether you made payments on time or financial hardship arrangements.
- Defaults (a formal notification from your credit provider to a credit reporting body stating a payment is 60 days or more overdue).
- Serious credit infringements (for example, fraud or intentionally failing to comply with credit obligations).
- Applications for credit in the last five years.
- Any commercial credit information.
- Public record information, such as credit-related court judgements or bankruptcies.
- A list of everyone who has accessed your credit report.
Improving your credit score
If your credit rating is at the low end of the scale there are several steps you can take to help improve your score.
Avoid defaults being added to your credit report by paying your bills and debts on time.
Consider what you can change that will have a positive impact in the future. For example, reducing the limit on your credit card, if you don’t use the full amount.
Seeking financial assistance will not impact your score. The National Debt Helpline provides a free and confidential financial counselling service to help you to manage your money.
When checking your credit report, ensure that there isn’t any incorrect information showing. For example, you don’t want any debt showing up that is associated to someone with a similar name. If you see something that doesn’t look right, contact the financial institution. You’ll need to provide evidence that the debt doesn’t belong to you.
It’s important to note that every time you apply for credit, a credit enquiry will be made which will show on your credit report. This means each enquiry can have an impact on your score.
Ready to apply for credit?
Once you’ve checked your credit rating, you’re in a more informed position to apply for credit. Visit a BCU Bank branch, apply online or make an appointment with one of our mobile lenders to discuss your needs.
*Source: Finder