Your Credit Score is a value assigned to you by a Credit Reporting Body, referring to your creditworthiness… simple? No way!
There are four major Credit Reporting Bodies (CRB) in Australia. They are Equifax, Experian, TransUnion and Illion. In this article, we’ll take a look at Equifax, previously known as Veda, as it is the largest CRB in Australia.
What is a credit score?
Your Credit Score is a number, between 0 and 1200, which will slot you into one of five categories; Below Average, Average, Good, Very Good or Excellent. The higher the score, the better the rating.
How is my Credit Score calculated?
Your Credit Score is calculated using a complex algorithm, taking into account;
• Personal Information – This includes how frequently you have changed jobs and moved house
• Repayment History – Have you been meeting repayments on all your credit commitments
• Credit File – Including how many credit enquiries, i.e how many applications you have submitted previously
• Adverse Events – Any court notices, judgements, bad debts
Why should I care about my Credit Score?
Most banks and lenders now use Credit Scoring as part of the overall assessment when considering your application for credit, including Home Loans and Car Loans. We are seeing a spike in personal lending, particularly Car Loans, where the Credit Score can become a deciding factor for the interest rate. The lower your score, the higher the perceived risk to the lender resulting in a higher interest rate.
How do I find out what my Credit Score is?
Your Credit Score can be a powerful financial tool. The first step is knowing what yours is. A quick Google search will show up many different options, some will charge you a fee whilst others provide the service free of charge, in return for targeted advertising from sponsor partners. Personally, I’ve used GetCreditScore and was really pleased with the quick response.
What do I do if my Credit Score is not great?
If you need to apply for a loan now, talk to a Finance Broker who can guide you through the process. Tell them what your Credit Score is, and they will help you find a lender who does not use the Credit Score in their application analysis, or a lender whose interest rates are still competitive in your situation.
If you do not need to apply for a loan straight away, you might like to try increasing your score. Think first about why it is low to start with, and target that area. Are you meeting your repayments on time? Do you have too many credit cards and you could close some down or reduce their limits? Don’t apply for credit unless you need it (looking at you Serial Balance-Transferrers).
If you’re not sure what’s causing your low Credit Score, order a copy of your full Credit Report from Equifax and make sure that there are no defaults listed incorrectly, or that you are not aware of.
For more information call Ellen on 0423688756 or get in touch here.