For most things in life, understanding credit scores won't make any difference and you'd be none the wiser.
But, here’s the thing! There are definitely going to be times in your life when knowing about credit scores (especially your credit score) will be important if you want to move forward with your financial journey.
Have you ever checked your credit score? Or just wondered what it is? It doesn't have to become a problem if you know what things to watch out for that might affect your credit score.
Let’s unpack the basics together.
A credit score is a single number (between 0 to either 1,000 or 1,200) that provides a rating based on your credit report which documents your personal financial history and status.
A higher score means that a bank or lender will consider you as less risky, and it could strengthen your application for a loan.
Your credit report will include a credit rating based on the range your credit score sits within. Example ratings are: low, fair, good, very good and excellent.
Your credit score is determined by credit bureaus (also called credit reporting agencies or bodies), and in Australia, one of the primary credit bureaus is illion.
Your credit score will vary between the different credit bureaus, as they each use different data, algorithms and rating scales.
Your credit score is calculated based on what's in your credit report:
Your credit score can be impacted by a multitude of factors without you ever realising until you notice it in your credit report.
Events that can pull down your credit score include:
Top tip: A good habit to get into is regularly checking your credit report to ensure that your details are correct and up-to-date. It also means you can follow up on anything that looks suspicious. You can usually get free copy once a year from a credit bureau.
Your credit score becomes important when you want to borrow money—whether it's from a bank; for a credit card; for a buy now, pay later account (like Afterpay), or even a payment plan.
A credit score gives an indication to banks and lenders of how credit-worthy you are to understand how likely you are to repay any money you borrow from them.
Your score helps banks and lenders to decide if—and how much—they'd be comfortable with approving for a loan.
Your score is an important factor particularly when applying for sizeable borrowing, like a home loan. It can make or break a deal; the higher your score, the more likely it is that you'll have your loan approved!
A higher credit score may also unlock lower interest rates as well as a higher credit limit or loan amount. So, you can get a better deal and save money from lower repayments and interest charged.
As you can see, there are a few important reasons why your credit score really matters!
Knowing what your credit score is pretty handy. As you now know, a high score could help you negotiate a better deal.
And, well… if it’s not so good, you’ll understand why your application might've been declined.
To find out your score, some credit bureaus provide a free credit score or credit report (one-off or once a year). There are also online credit score providers where you can get your score.
If your credit score isn’t as healthy as you’d like, it's not the end of the world! It may take some time, but it can be improved.
The first step is to check the information in your credit report to make sure it’s accurate. If something doesn't look right, contact the credit bureau to clarify or get it fixed up.
Other essential things you can do to improve your credit score include:
These simple tips can help your help maintain a healthy score for whenever you need it to work in your favour.
If you're using RentPay to make rent and tenancy-related payments, users have access to an optional feature to help boost your credit score with Scorebuilder.
Each month you have an open Scorebuilder account, we report your account status to one of Australia’s leading credit reporting bureaus.
If you maintain a good account status (i.e. demonstrate good financial conduct), reporting of that data to a credit bureau over time can positively impact your credit score.
You might also like:
> Can I improve my credit score by paying rent on time?
> Love Afterpay? It could affect your chance of buying a house
> Make your rent money work harder for you with RentPay
