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Are you thinking of applying for a loan? Do you know your credit score? Whether it’s a personal loan, mortgage, or a car loan, your credit score is important to the banks, and it matters to credit providers, insurance companies and car dealerships etc. It helps them decide whether to lend you money and, in some cases, can even impact how much they will lend you, the terms and rate they offer you. This blog will help you with some basic facts you need to know about what it takes to get a good credit score, why it matters, and why you should care about your credit rating.
Depending on the company conducting your credit rating, your score will be somewhere on the scale between Zero and 1,000 or 1,200. Zero means poor, 1,000, or 1,200 (also known as perfect score) means excellent.
There are three major credit bureaus in Australia, and each of them calculates their scores differently. For example:
Illion: The overall range is 0-1000 where 0-299 is low, 300-499 is fair, 500-699 is average, 700-799 is very good, and 800-1000 is excellent.
Experian: The overall range is 0-1000 where 0-509 is low, 510-621 is fair, 622-725 is average, 726-832 is very good, and 833-1200 is excellent.
Equifax: The overall range is 0-1200 where 0-549 is low, 550-624 is fair, 625-699 is average, 700-799 is very good, and 800-1000 is excellent.
Previously Australia had a negative only credit reporting system. This meant consumer credit reports could only contain negative borrowing information – like credit enquiries, court writs and default judgments, payment defaults, bankruptcies, insolvencies, personal details, the age of your credit file, and credit limit and usage.
Now after the implementation of the new Australian credit reporting scheme, Comprehensive Credit Reporting (CCR), in 2014, positive data can also now be included– like on-time payments and loans that have been repaid in full, types of credit account, opening and closing dates, credit provider details, and credit limit and usage. So the benefit of this scheme is that it can help your score tick back upward.
Therefore, whether lenders give you money depends on the breakdown of all the above information for them to decide how responsible and reliable you are as a borrower.
Dispute any inaccuracies on your credit reports – Incorrect information on your credit reports could drag your scores down. Solution: Review your credit history regularly to make sure it’s accurate and stay on top of any changes. Also, verify that the accounts listed on your reports are correct.
Pay your bills on time – Payment history is one of the top factors in most credit scoring models as lenders are very interested in evaluating how reliably you pay your bills. Solution: use resources and tools available to you, such as automatic payments or calendar reminders, to ensure you pay on time every month.
Don’t apply for too many credit cards – Too-frequent applications can be a sign of financial desperation. Solution: Do your research online until you’re sure of what you want and then talk to lenders before taking a step to apply. Also, you should only apply for one at a time. If your application is rejected, wait a few months before you apply again for the next one and make sure to check your credit score before you do.
Be responsible when managing your debt – Debts are like red signals to lenders, obviously never a good thing. Solution: Only borrow when necessary and when it works within your budget and ability to repay your debts on time.
Talking about loans that works for you, obviously you would be looking for a low rate fuss-free ones, right? Don't worry, we've recently partnered with award winning Australian based NOW FINANCE, Australia's leading go-to personal loan provider to help our members improve their financial wellness. Yes, you can get a range of Australia's leading loan products such as:
Not only do they have loans with attractive interest rates, but also flexible payment plans starting from 18 months up to 7 years. Guess what? There is no fees attached + getting a quote won't hurt your credit score too! How cool is that? WeMoney eligible members can also get a free rate quote and enjoy rates as low as low as 6.95% (6.95% Comparison Rate*) for excellent credit. If you are keen to explore, get your personalised quote now.
Depending on your spending habits, a higher credit limit can be good or bad to your credit rating for numerous reasons.
Pros of high credit limit – More credit equals more convenience/flexibility to make larger purchases as well as have money available for emergency situations.
Cons of high credit limit –
Debt risk: A high exposure to credit limit makes it harder to get approved for loans because you are more likely to fall into a debt trap. You are more likely to make irresponsible purchases when you pay with credit because the physical act of handing over cash can act as a restraining force.
Mortgage risk: The higher your credit limit, the harder it is for you to get a mortgage. Because when lenders are drawing up a list of your assets and liabilities, they might calculate your credit card debt, not as the amount you actually owe but the amount you could owe.
High credit limit/high credit score (addressing the pros above) – A huge credit component is your ratio of debt to credit. For example, you cannot owe $15,000 limit on a card with a $10,000 maximum limit because you are taking a major hit on your credit rating even if you have a perfect payment history. However, if you increase to $8,000 from $5,000 and it's within your credit limit, your debt to credit ratio lowers significantly, which raises your score. An increased credit limit directly relates to an improved credit score.
High credit limit/low credit score (addressing the cons above) – Reducing your credit limit will put a firmer limit on the amount of debt you can accrue, and it will also be recorded as a positive action on your credit report.
Solution: Manage your credit limit (increase/decrease your credit limit) and keep track of your credit report on a monthly basis to make adjustments according to where you stand in the scoring range.
Note: For most credit cards, the minimum credit limit usually is $1,000-$2,000, while the maximum credit limit can be as high as $100,000. As for the average credit limit, according to the Reserve Bank of Australia, it is approximately $9500.
Don't know what your credit score is? You can find out your credit score for free online anytime any day at your convenience. The WeMoney app also enables you to check your credit score for free and provide you with updates each month. With our app, you can track and monitor any changes with extra features like credit accounts/relationships, repayment on time, credit enquires, and negative events.
To learn more about credit scores, take a listen to Episode 3 of We Talk Cents. Your hosts Dan & Blaize dive into what a credit score is, why it’s important and what factors impact your score for better or for worse. To take a listen check out the link here.
WeMoney was recently featured in 6PR 882 News Talk, check out the full podcast on how you can revive your credit score here.
Also, If you enjoy using our app, please take a moment to rate it in the App Store. Your feedback in the past has tremendously helped WeMoney become the better version of yesterday. Massive thanks to each one of you for making that happen! And now, we need your most genuine support in making WeMoney the best version of the future - 2021!
You’re also entitled to a free copy of your credit reports every 12 months from each of the three nationwide credit bureaus in Australia, visit Moneysmart.gov.au for more information.
Disclaimer: The author is not a financial advisor and the information provided is general in nature and was prepared for information purposes only. This article should not be considered to constitute financial advice. Accordingly, reliance should not be placed on this article as the basis for making an investment, financial or other decision. This information does not take into account your investment objectives, particular needs or financial situation.
Things you should know
Applications for finance are subject to Now Finance’s lending and approval criteria. Terms and conditions may apply. No establishment, account keeping or early repayment fees will apply to all new personal loans. Charges such as default or enforcement costs may apply if you do not comply with the terms of your loan. Settlement times may vary depending on individual circumstances. Loan repayment terms range between 18 months to 7 years with interest rates ranging from 6.95% p.a. (6.95% p.a. comparison rate*) to 17.95% p.a. (17.95% p.a. comparison rate*).
About Comparison Rates
The Comparison Rate is designed to help you understand the overall cost of the personal loan. It combines the amount of the loan, loan term, repayment frequency, interest rate, fees and charges into a single rate to show the total true cost of the loan. The comparison rates for the Now Finance loans are based on a loan of $30,000 over 5 years.