Things that affect your Credit Score
It’s important to know the things that affect your credit score and what this means for your ability to get a loan. A Credit score is a number calculated from your credit history that determines if you are a good risk for a financial institution to lend money to. In Australia, an average credit score is 749, but a good score can range between 622 and 1200.
Most adults in Australia will have a credit report which contains the history of their financial conduct. This history relates to how you have managed your debts, paid your bills, how many applications for credit you have made and whether you have any major defaults, bankruptcies or court writs. When applying for any sort of credit such a personal loan, car loan, home loan or credit card, a financial institution will check your credit report. If your credit score and financial conduct do not meet their requirements, your application for a loan may be declined or you may be required to pay a higher interest rate.
Your Credit file includes
- 4 Full name
- Date of Birth
- Drivers Licence
- Employee details
- All credit applications made in the last 5 years
- All requests for copies of your credit file
- A debt of $150 or higher that is more than 60 days overdue
- Repayments on all existing loans
- The types of banks accounts you have and dates they were opened and closed
- Credit Limits – this is the maximum amount of credit available to you for each credit facility.
- Court judgements and court writs
- Company directorship details
- Company proprietorship details
- bankruptcy, debt agreement and personal insolvency information.
How to make sure you maintain a good credit score
1) Minimise the number of credit applications you make – A credit application can be for a home loan, personal or business loan, vehicle or equipment loan, credit card, household utilities or mobile phone. When applying for a loan, some people submit multiple applications to a variety of lenders in the hope of getting one application approved. You must remember that every time you apply for credit, your application is recorded on your credit report, even if you don’t go through with the loan. If a lender see’s multiple applications within a short space of time on your credit report, they will assume you have been declined by other lenders and will be less likely to approve your loan. If you’re uncertain of your chances for a loan approval, the best strategy is to speak to a Mortgage Broker who can look at your specific circumstances and recommend the lender who is most likely to approve your loan. Every lender has different criteria and some are more flexible than others. A broker can explain these to you and spare damage to your credit report.
2) Paying bills on time
Paying bills on time is essential to maintaining a good credit score. Any bill that is greater than $150 can be noted as a default on your credit file once it is more than 60 days overdue. This includes bills such as utilities and mobile phone bills. Before listing a default on your file, a credit provider must send you a notice, in writing, requesting payment, if payment is not made, they must send a second notice in writing, advising you that the debt may be reported to a credit reporting body. All defaults remain on your credit report for five years, even after you have paid the overdue amount. The fact that you have had an account that became overdue and was then paid remains a part of your credit history.
3) Keeping up to date with loan repayments
Make sure all loan and credit card repayments are paid on time. Repayments that are more than 14 days overdue on loans and credit cards are noted in your credit file as a late payment and will remain there for 2 years. If a lender see’s multiple late payments on previous loans, they may be cautious about your ability to repay a home loan. The best approach is to set up direct deposit payments on your loans to avoid forgetting to make a repayment.
Be aware of what is on your credit record & fix any issues immediately
Eight out of ten people in Australia have no idea what is on their credit report. It is important to have your credit report checked prior to applying for a home loan to ensure all information is correct and there are no issues on there that need be addressed. These could include things like a mistake made by a company who has filed an incorrect report, an incidence of identity fraud that you are unaware of or a miss paid bill due to an address change or dispute with a company that needs to be corrected. Your Mortgage Broker should do a free Credit Report check for you prior to applying for a loan and if there are any issues on the report that could effect your application, the broker should be able to advise you on how to rectify these and possibly have them removed from your file. If they are not able to be removed, your Broker can recommend a lender who may be more flexible than others concerning this particular circumstance. The Broker can address the issue with the lender when submitting a loan application and explain the circumstances regarding the issue and why it should not effect your future financial obligations.
Serious Credit Infringements
A serious credit infringement is where money is owed to a credit provider, it has been listed on your credit report as a default and multiple attempts have been made to contact you over a period of six months, with no response and the amount owing is still outstanding. A serious credit infringement will remain on your credit report for 7 years unless it is paid and then it will revert back to a default which remains for five years.
Positive Credit Information
From March 2014, in addition to negative credit information, the Australian credit reporting system included positive information on individual’s credit reports. Positive credit information can greatly impact your credit score.
Positive credit information includes
• Type of credit account, e.g. a credit card or home loan
• Account opening and closing dates
• Details of the credit provider
• Your credit limit, usage, repayment history and account balance
How to improve your credit score
1) Have issued fixed immediately – Make sure any outstanding money owed is paid in full. If you believe there is an error on your credit file, contact the company who listed the default and see if you can have them remove it. Contact a credit repair organisation to see how they can assist you.
2) Get a credit card – If you have a credit card that you use regularly and always make up to date repayments, this will show a lender that you are able to manage your debt. In saying this, don’t go out and get multiple credit cards. You must remember that every time you apply for credit – it is record on your file and can reduce your score. If you already have a credit card, you can request for increase on the limit instead of applying for a new card. This will show a lender you are able to manage a large amount of credit.
3) Manage different types of credit – Showing that you can manage different types of credit and pay them all on time can increase your credit score. For example have a car loan for your car and get a personal loan to buy a piece of furniture.
4)Become a credit holder on your partners good account – If your partner has a good payment history, have them add you as a credit card holder to their credit account. In this case, their payment history will be included on your credit file, giving you a positive account. Make sure this is only done with a person you can trust because if they start making late payments or default on the credit, this will also be recorded on your file.
You can get one free credit report per year from VEDA which will be sent to you within 10 working days. It is not recommended to apply for more than one credit report per year as every inquiry is recorded on your file (even ones you make for yourself ) and can reduce your credit score. If you apply for a loan through Assured Lending, your Broker will provide you with a free Credit report before lodging an application and assist you with any issues that may appear on the report.