Do you know your credit score?
According to a study by finder.com.au, two-thirds of the nation’s population have no idea what their credit score is.
Your credit score is a number from a credit bureau that sums up your credit position.
It is calculated using the information on your credit report.
As someone interested in property investment it’s important you understand what a credit score is and how you’re performing, because it’s something the banks will look at carefully.
A recent study by finder.com.au, took a look at some of the biggest misconceptions when it comes to understanding your credit score and found that Aussies are misinformed about what affects their credit score.
Of the misconceptions, 37% of the 2,033 people surveyed by the comparison site wrongly believe not paying their tax on time will negatively affect their credit score.
Bessie Hassan, Money Expert at finder.com.au said, paying your taxes late does not affect your credit score however there are a number of factors that do.
“Lenders look at indicators such as loan repayments and credit card repayments, not if you’ve paid your taxes on time.”
“If you’re looking to take out a loan with your partner, your partner’s credit score can also affect your borrowing capacity," she said.
When it comes to the impact of missed repayments, it is tricky to understand because it varies.
In fact, more than a quarter of those surveyed (27%) by the comparison site, believed a missed credit card repayment from 10 years ago still counts, however it doesn’t.
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The major credit bureaus in Australia break down missed bill payments and loan repayments in the following three ways:
- Late payments - payments overdue by 14 days. These violations stay on your credit file for two years.
- Defaults - payments overdue by 60 days and more than $150. These violations stay on your file for five years.
- Infringements - a default where the lender has been unsuccessful in contacting you. These violations are not wiped for seven years.
Which of the following do you think can affect your credit score?
* Respondents could tick all that applies.
Ms Hassan said it’s important to understand what your credit score is based on and what impact having a poor credit score can have on you.
“Busting credit score myths and ensuring perception matches reality is critical especially for Aussies considering to take out a loan because lenders use your credit score to determine your borrowing capacity.
“It is near impossible to make changes to improve your score if you do not know what you need to change or worse yet, you do not know what your credit score is.
"Depending on your credit score, knowing may either give you the peace of mind you need or the wake up call you need,” she said.
How can I improve my credit score?
There are a number of things you can do.
- Make credit card and loan repayments on time. If you have a credit card or personal loan, make sure you are making repayments on time. Your ongoing repayments are listed on your credit report and on-time repayments can improve your score. Making additional repayments can also be a good option to consider because you will pay off your loan ahead of schedule, and your score will improve when the account closes.
- Space out credit enquiries. Every time you apply for credit it is listed on your credit report. It will be listed whether or not you are approved. To avoid these enquiries building up and negatively affecting your score, double check you are eligible for any product before you apply. If you aren't approved for your first choice you can still apply with an alternative lender, but don't make this a regular occurrence. A general rule is one application every six months won't negatively affect your score.
- Keep an eye on your credit report. Check everything on your credit report to make sure all of your information is correct. You may find a listing that hasn't been updated or something that is wrong which could improve your score.
- Make sure all your providers have your contact information. Many defaults occur because banks and lenders aren't able to contact their customers. Make sure you redirect mail if you move and check that all your banks and credit providers have your contact details.
- Consider consolidating your debt. As you can see from the table above, too much unsecured debt or excessive open credit accounts can decrease your credit score. If you are in this position you may want to look into your debt consolidation options. This can not only increase your credit score but also help reduce what you're paying in interest and fees.
Check your credit score regularly
Your credit score gives you an idea of what your credit position is.
By checking it regularly you can see if your behaviour is good or bad for your credit score.