Your credit scores, what the flying hell is it, how to improve, where to get, and so forth. Let’s dive right in.
So, what is a credit score?
Your credit score is a summary of data points to provide a numerical figure on the trustworthiness of an individual. The score ranks between zero (the worst) and 1,000 or 1,200 depending on the provider. It is used by Banks, and providers of ‘credit’ (money or finance-related products) to help identify which customer has the least likely risk to them, and the most likely to repay their products back in full (so the buggers can make their interest – grrrr!).
How is a credit score calculated?
The number is calculated based on a set of data points, all of which help form the view if you should be lent money too, here are some key items:
How many credit enquiries you have had in the past?
Your prior liabilities repayment history
The level of borrowings you have had in the past
The type of liability (good or bad)
Why is your credit score important towards a home loan?
It’s a real critical factor with borrowing for a home loan. There are a few lenders that will skip looking at your credit score, but they may charge a higher interest rate for doing so. Some lenders are notorious for having a harsh view of your credit score, and others even add more data points from your application to
Think of it this way:
If someone asks for money from a number of people, it could be a sign of desperation, the same can be said if you have too many enquiries in a short amount of time
If someone who asked to borrow money from you, in the past hasn’t paid you or other people back, you would probably be hesitant to give them money
If you have, a lot of debt, then to give you more could be risky
Is it like this around the world?
100% around the world, credit scores are used all the time to help banks and finance providers understand their end clients. The famous credit score is the use FICO scores! Some added information, there are two types of data gathering; positive and negative reporting. Negative reporting means the credit system only picks up the bad things you have done; missed bills, payments, etc. Positive is when they also noted down the good things you have done; always paying on time etc. In Australia, we only had ‘negative’ reporting for a number of years but since 2018 more positive reporting has been hitting our scores! Woot. Woot!
How do I check my credit score?
You can get a free report from either of these providers. We would suggest using these instead of other online providers, because this is where the bank gets it
What’s a bad credit score?
The rule of thumb is under 600, and it doesn’t help when looking to get a home loan. Not to worry, there are some banks that will lend to clients with lower credit scores, and some don’t even care. The trick is that they are taking more ‘risk’ on you, so the interest rate will be higher. Some of these banks are Liberty, Better Choice, AMP, Pepper, Bank First.
3 reasons why your credit score could be LOW?
You may have missed a bill
You may have forgotten to pay that credit card off and it defaulted
You may have applied for too many personal loans or credit cards in a short period of time
3 ways to improve your credit score?
It’s simple, pay your loans on time.
Make sure you have automatic direct debits for the minimum payments for all your loans
Only apply for credit when you need too and close off any cards that you don’t use
Banks make mistakes, so if you see an issue, reach out to the credit score provider and fight the battle