I’ve got 99 Problems and My Credit Score is One of them.

Where to start, what to do? If you have ever applied for finance and been knocked back, or gotten a less than ideal interest rate, chances are your credit score may be less than amazing. There are so many parts to a personal credit score and navigating this without all of the information can feel like your wandering around blindfolded, with one arm tied behind your back.

Let’s talk about it, What is your credit score? What affects it? How can you remove the blind fold, free your arms and take control of your financial future?

 

Firstly the Importance of a Good Credit Score

A good credit score is more than just a number. It is a reflection of your current financial position, your financial ‘morals’ or behaviors. It impacts how lenders look at your application when you apply for personal loans, car loans, boat loans, or any type of lending.

A higher credit score can quite often mean better interest rates, more choice as far as loan type or even lender. It can also affect your ability to rent a house, get an electricity account, a mobile phone, even impact your ability to land a certain job.

Essentially a good credit score can open doors to all types of opportunities. By managing your finances and credit score effectively you are proving you are a responsible borrower, and a ‘safe’ bet.

 

What is on my credit file?

Your credit file is a combination of information from multiple sources. It includes your name, date of birth, employment and address history. It may also include any loans or other facilities you have applied for within the last 5 years, as well as any credit defaults, court judgements, bankruptcies or unpaid bills.

In addition to the above, your credit file may also include your past 2 years repayment history on any loans or credit cards.

The combination of the above is then used to generate your credit 'score' which is a number between 0 and 1200. With the higher the score the better.

You can get a free copy of your credit file every 3 months to make sure it’s correct. You can also request a free copy if you have had a loan application refused within the last 90 days, or your credit reporting information has been corrected. You can request this directly from Equifax here: www.equifax.com.au/personal

 

How do I fix errors on my credit file?

You have taken the first step, and are grabbing the bull by the horns, you have a copy of your credit file, but hang on a minute, what’s this? I never applied for a loan with them? I didn’t have that unpaid bill with them…… What is going on?

Congratulations, first step complete, now check your credit file, go over it with a fine tooth comb, if you discover any inaccuracies within your credit report it is important to take immediate action to have them rectified as soon as possible.

Contact Equifax and file a dispute, clearly indicate each error you found and provide any evidence you have to support your claim. Equifax is required to investigate the disputes, typically within 30 days. You should also contact the lender/creditor who listed the error to ensure that they correct the information on their end as well.  If your dispute is resolved in your favor, Equifax will update your credit report, which can positively impact your credit score.

Don’t forget to follow up on your dispute and make sure all changes are made, also keep any and all correspondence relating to this.

The Power Paying on Time

You have a copy of your credit file and everything is correct, but your credit score is still average? One of the best ways to boost your credit score is to make your repayments on time EVERY time. Your repayment history is a huge part of what makes up your credit score, and even one late repayment can significantly reduce your score.

To ensure that your repayments are made on time every time, set up reminders, organise direct debits that coincide with your pay/income cycle, stay organised and vigilant. Also important to remember that even accounts that wouldn’t normally be associated with credit reports like utility and phone bills can also affect your credit score if they aren’t paid on time.

We have countless clients with perfect repayment history on their loans, but a missed electricity or phone bill has gone into default and destroyed their credit score.

Consistency is key here and slow and steady wins the race. Keep up with consistent on time repayments and your credit score will gradually increase.

 

How the Type of Credit and how many loans your applying for can impact your score.

Another factor that impacts your credit score is the type of credit you're applying for and the lender involved. Applying for multiple loans in a short period of time can raise concern with lenders about financial stress and can decrease your score even though you haven’t missed any repayments. I once had a client who at the age of 21 had 52 enquiries on their credit file, even though they had a current loan and NO late payments or defaults, the number of enquiries alone, reduced their credit score to below 300.

Also the type of credit provider you choose, the type of account your applying for and the amount can also have a massive affect on your credit score. Mortgages, car loans, personal loans, store finance and short term cash loans can carry different levels of risk, as does making your enquiry with a mainstream lender vs a payday lender who offers high risk loans.

1. Think twice before applying for new credit. Apply only when you need it and limit the number of hard inquiries on your report by not applying for credit frequently.

2. Research and choose wisely before submitting any credit applications. (Or contact a helpful broker to do the research for you)

Stay in control and achieve your goals.

Congratulations, you have done it, you have taken the bull by the horns, and are in control of your financial future.

By understanding what a credit score is, what impacts it, how to get a copy of it, correct errors and how to improve it. You can now be confident that YOU are in charge of your future. So go you!

 Don’t forget we are always here to help, no question is a dumb question and if you would like to chat further please don’t hesitate to reach out.

Candice @ Inspired Asset Finance