Whether we like it or not, we all have a credit score. They play a big role in our finances, too, so it’s crucial to maintain them (at a high level). But why, exactly, are they so critical? This handy guide includes all the information you need to know, from what a credit score is to how it can be improved.
A credit score is a number that reflects how responsible you are with your money. In Australia, this number will fall between 0 and 1,000 if you check your score on Experian and Illion, or 0 and 1,200, if you check it on Equifax. The higher your score is, the more financially responsible you’re deemed to be.
Your credit score will be calculated based on your credit history, current and past debt levels, how many banking accounts you have, your track record on repayments, and other related factors.
Yes, a credit score is very important, mostly because it dictates what loans you can take out and the limits you can have on your credit cards.
While you might not need to take out a substantial amount of money right now, you most likely will in the future. As such, you need to start thinking about your credit score as soon as possible. You don’t want to reach a point in your life where you’re ready to take out a mortgage and find that your low score makes you ineligible.
Exactly how high your credit score should be for important loans and investments will, however, vary depending on the credit reporting bureau you consult. Given that Australia’s three major bureaus will score you based on different scales, the same score from two separate platforms could mean very different things.
Generally speaking, though, for Experian and Illion’s scoring scales, 800 to 1,000 would be considered excellent, and 700 to 799 would be very good. For Equifax, anything between 833 and 1,200 would be excellent, while 726 to 832 is very good. These are the sorts of numbers you should be aiming to hit.
There’s no hard and fast set of rules for what makes a credit score go down and by how much. The factors that affect your score will vary depending on the calculations each bureau makes. Generally speaking, though, the things that will have the biggest impact on your credit score are as follows:
It’s only natural to worry about your finances, and you’re not alone if you do. In fact, in 2021, almost a third (31%) of Australians have reported experiencing significant financial stress. So, to help make things a little less overwhelming, here are three simple tips to help you improve your credit score.
It’s a good idea to look for a credit card that comes with minimal annual fees and lower interest rates, but don’t go applying for every attractive prospect that you come across. Making excessive applications will reflect poorly on your credit profile, especially if one or more get rejected.
Always pay your credit card bill every month, and aim to pay more than the minimum each time. Where possible, clear your credit card debt as soon as you can. This will prove to the banks that you can be trusted to borrow money.
Check your credit report regularly and dispute any errors you find. It’s not uncommon for mistakes to be made, and these can do damage to your credit score.
A good credit score increases your chances of getting approved for loans and means banks won’t impose such strict limits on what you can spend on your credit cards. So, it’s important that you keep on top of yours by being financially proactive and avoiding common pitfalls.