How is your Credit Score determined?
- Your personal details (age/location/time at employment)
- The type of credit providers you have used (bank/utility company/credit union)
- The amount of money you have borrowed
- The number of credit applications/enquiries you have made
- Any unpaid or overdue loans or credit
- Any debt agreements or personal insolvency agreements relating to bankruptcy
- The type of credit products you have held in the last 2 years
- Your usual repayment amounts
- How often you make your repayments and if you make them by the due date
Credit analysts use this information to formulate your individual credit score which will be between 0 and 1000 or 0 and 1200 depending on the reporting agency you are using. That number is then rated on a scale that determines your risk level as a potential loan customer.
*Information also sourced from the official ASIC website
Can I improve my Credit Score?
The easy answer here is yes, but it is a process and one that must be consistent and ongoing in order to make an impact. Improving your credit score is a commitment and discipline but one that is well worth the time and effort. Putting the following steps in place will not only improve your credit score, but it’ll also set you up with good “healthy credit” strategies for a more secure financial future.
Step 1- Pay on time
It seems obvious but it is one of the most important and effective things you can do. Every time a loan or a bill is paid late, it can reflect badly on your credit rating. If you are a prompt payer, then this shouldn’t be an issue. If you struggle with paying things on time, you can organise to have a direct debit set up for a lot of things which will help take the guesswork out of paying your debt. You can also call your loan institutions and organise to have payments come out on or close to your payday, that way, you can never be caught short.
Step 2 – Update your info
If you move to a new house or change your phone number or email address, make sure to notify your lending institutions. If you forget, it can mean you miss bills and then, in turn, miss the payments and risk a black mark on your credit report. Taking the time to make sure your details are up to date with your bank is a little bit of work now for peace of mind later.
Step 3 – Know your score
Knowing what your credit score is to start with is advisable. You are allowed one free credit report each year so once a year, you can check your score (at no cost) and see how you are tracking. If you want to be more across your credit, you can sign up to a monthly subscription that will give you access to your score and set up alerts on your credit report. If you are relatively new to applying for credit, then your score may not be particularly high as you’ve not shown much activity. It may seem counter-intuitive but there are smart ways to apply for credit that will assist in building a healthy credit report. Which brings us to step 4.
Step 4 – Watch your applications
If you make too many applications for credit in a short space of time, it will impact your credit score negatively. Credit seeking is perceived to be a symptom of financial struggle. Track what you have applied for and when and be proactive about managing those applications. It’s not just the number of applications that will affect your credit score. Things like the size of the loan you apply for, the agency that you are applying through (telco/store finance/bank) and the type of credit you are applying for (personal loan/credit card/mortgage) will all have a “risk value” attached to them.
Step 5 – Communicate with your lenders
If you find yourself struggling to meet your repayment obligations, don’t remain passive in the situation. Call your banks to negotiate payment arrangements. It is far more positive to show that you are actively trying to manage your credit than it is to just allow a payment to default and potentially impact your credit report in the long term. You will find most lending institutions are happy to work with you for a mutually beneficial outcome.
So, there you have it, these 5 simple yet effective steps will put you well on your way to a better credit score.
If you would like to know more ways and tips about improving your credit score, contact us at Smartline Rockingham.