Credit Scores are not just simply numbers, they are the key to achieve your financial goals. So, if you are planning to buy a home, secure a loan, or save on insurance rates, having an excellent credit score can help to make difference with your financial goals.
But what exactly is a credit score and how can you improve yours? This article will help you be familiar with credit scores, how you can calculate it and why do they matter.
What is a Credit Score?
Credit score or also known as credit rating is a summary of your financial capabilities. It gives lenders knowledge into how to can repay your debts.
In Australia, credit scores usually range from 0 to 1000 (or up to 1200 depending on the reporting agency), higher numbers means that you have a good credit while low numbers mean bad credit rating. Remember that these scores influence the credit products that you want to qualify for as well as the interest rates you pay. Generally, a score above 700 is still considered as good credit score.
How to Check Your Credit Score?
Before you make major financial decisions, knowing your credit score is very important. If you want to get your credit report, you can access it through Australia’s three main credit reporting agencies: Equifax, Experian, and illion.
According to law, you can get a free copy of your report every three months or after being denied credit. But if you will access your report outside the free services, there might be a fee that you have to pay.
How Credit Scores Are Calculated
Credit Scores is calculated through different factors, including:
- Credit Limits: The total amount of credit available to you.
- Credit Applications: The frequency and number of credit inquiries you’ve made.
- Repayment History: Your record of making timely payments on loans and credit cards.
- Debt Levels: The amount you’ve borrowed and your ability to manage it responsibly.
- Negative Records: Bankruptcies, defaults, or court judgments against you.
Each reporting agency has its own scoring range and criteria. Here’s an overview:
Equifax
- Excellent: 853-1200
- Very Good: 735-852
- Good: 661-734
- Average: 460-660
- Below Average: 0-459
Experian
- Excellent: 800-1000
- Very Good: 700-799
- Good: 625-699
- Fair: 550-624
- Below Average: 0-549
Illion
- Excellent: 800-1000
- Great: 700-799
- Good: 500-699
- Room for Improvement: 300-499
- Low: 1-299
Tips to Improve Your Credit Score
It takes time and effort to improve your credit score, but everything will be worth it because you can access more loan and gives you more freedom with your financial decision. Here are some of the practical steps to help you get started.
- Make Payments on Time: Remember that your payment history impacts your credit score, so ensure that all of your bills and loans are paid promptly.
- Reduce Debt: Focus on paying down your high-interest debts first while keeping your balances low on other accounts.
- Lower Credit Utilization: Make sure to keep your credit card balances below 30% of your credit limit to demonstrate responsible usage.
- Monitor Your Credit Report: Check if there’s any errors or inaccurate informative. If you found one, get help from the reporting agency.
- Maintain Old Account: Old Account usually reflects a longer credit history, so keep it.
Why do Good Credit Scores Matter?
Having a strong credit score helps you to open door to many financial opportunities. It can help you secure lower interest rates on loans, qualify for better credits cards and even influence non-financial aspects like renting an apartment or setting up utility accounts.
Furthermore, beyond the practical benefits it offers, having a good credit score is also a sign of financial health and responsibility and shows that you can manage you’re a reliable borrower.
Seek Professional Advice
It’s normal to feel overwhelmed with all the financial information that you have learned, but don’t worry because you can always consult to a financial planner. They can help you assess your situation, tailored advice, and guide you toward a better financial health.
So don’t hesitate to reach out for a help from financial expert because with guidance, you can navigate the complexities of credit scores and set yourself to a long-term financial success.
