Credit score is not just a number, it can be the key to unlock your future goals and dreams. So whether you plan to buy a house, take out a new loan or simply just want to save money on insurance rates, an excellent credit score is very important.
But what exactly is a credit score? In this blog, we will go through the basics of credit score, how to improve your own credit score, and why it matters when you take a loan.
What is Credit Score?
Credit score is commonly referred credit rating or credit report, which means it is the history of your finances and debts that helps lenders to know if you are making timely and full repayments.
In Australia, credit ratings is usually expressed between 0 and 1000, the higher your credit score, the better is your chances to have a good credit. Moreover, it will help to determine what kind of credit products you can access as well as the interest rates that you will be required to pay. For instance, lenders often view score of above 700 as good score.
But on the side, even if you have a good credit score, remember that it’s not the only factor to get approve for a loan. There are also other things that the lenders review like income and employment.
Where Can You Check Your Credit Score?
Being aware with your credit score is very important when making major financial decisions. If you want to check your credit report, you can do it using these three main credit reporting organisations in Australia: Equifax, Experian, and Illion
You can have a free copy of your credit report, however, you might have to pay a price if you will check it outside the free service.
How Is Your Credit Score Calculated?
Credit Score can make or break your ability to access financial products such as loans, mortgages, and even mobile phone contracts. But how exactly is your credit score calculated?
Credit scores are determined by a range of factors, including the following:
- Credit limits are in effect at the moment
- The number and frequency of credit applications you’ve made in the past
- A forecast of your capacity to make timely repayment of bills
- A summary of how much you have borrowed in the past
- Your repayment history for any loans or credit cards
- Any bankruptcies, defaults, or court judgments under your name
Furthermore, credit ratings range from low or below average to excellent. To keep you familiar, we’ve put together a handy guide to the credit ratings assigned by Australia’s credit reporting organisations. (source: Forbes)
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
How To Improve Your Credit Score?
If you’re looking to improve your credit score, here are some tips to get you started on the journey.
- Make payments on time: One of the most important factor that helps to determine your credit score is your payment history. So if you made some late payments or completely miss them, it will negatively reflect on your credit report. That’s why you to be diligent when it comes to you bills payment and don’t forget to keep track the due dates.
- Pay down debt: Too much debt can affect your credit score, so pay it off as much as you can. But it doesn’t mean that you have to pay your depts in one go, instead, you just have to focus on high-interest debts and then pay off the smaller ones.
- Reduce your credit utilisation ratio: Try to keep the money you owe well below 30% of your total available credit limit.
- Check your credit report: Mistakes can happen anytime, so if you found one on your credit report, contact the relevant bureau and ask them to fix any errors in your credit history.
- Don’t close old accounts:Closing unused account can actually damage your credit score since old accounts provide evidence of your long payment history. So instead of closing it, you have to keep it so it will help your credit score.
The Importance of Having A Good Credit Score
A good credit score is important nowadays as it affects everything if you are planning to get a loan. With a good score, you can save thousands of dollars in the long run, which will save you thousands of dollars in the long run and allow you to make smart financial decisions. So in short, having a good credit score should be taken seriously!
Get Help and Support!
A wave of financial information can be pretty overwhelming, that’s why getting help can get you back on track. With the support of a reputable financial planner, you can assess your current financial situation as they will provide you advice that suits your needs.
With their expert knowledge, you can rest easy knowing that your finances are in safe hands. So don’t be afraid to reach out to a professional if you find yourself in a financial pinch!
