What is my credit score and how do I manage it?

If you are looking to buy property in the near future there are a lot of numbers you’ll be keeping track of – how much deposit you are saving for, how much you can borrow, how much to allow for closing costs, a figure for your total overall budget, as well as how much your monthly repayments are likely to be. With all those figures in your head it’s no wonder that another important figure – your credit score – often gets overlooked.

If you are on top of all your other numbers but not sure what your credit score is, you are not alone – approximately 80% of credit active Australians don’t know their credit score.i

It is an important number to be aware of – particularly if you have been through a period where you may have struggled to pay bills or repayments on time.

An important number

Your credit score is a number between zero and either 1000 or 1200, depending on the credit reporting body. Lenders use this figure as one of the factors that help them decide whether to give you credit or a loan, how much to lend to you, and at which rate of interest – on the basis that lenders want to lend to and offer more attractive deals to those they consider will be less likely to default on the loan. It’s all about using the variables that make up the credit score to weigh up risk. The higher your score, the more likely it is that you’ll get approved – and get a good deal.

How is this number calculated?

Your credit score is calculated using the financial and personal information available in your credit report. An algorithm crunches the variables to determine your final score – looking at your overall debt and how you manage it, the number of loan applications you have made, your credit cards and current credit limit as well as accounts you may have opened or closed.

Credit reports are required to also show details of any financial hardship arrangements that have been put in place like loan deferrals and reduced payments. These used to show the account holder as being in arrears with payments and had a negative impact on your credit report but now, as long as you meet the requirements of any financial hardship arrangements you may have in place, it won’t be detrimental to your score.

How can I access my credit score?

You can request your credit report from Equifax, Experian and Illion. You can get a free report every 12 months, if you have been refused credit within the past 90 days, or if your personal information has been updated.

What’s considered a good score?

If your credit report shows scores out of 1,200 then as a rule of thumb a score above 853 is excellent while above 661 is good.

If your credit report shows scores out of 1,000, above 690 is excellent and above 540 is good.

How to improve your credit score

If that magic number is looking a little low, there are steps you can take to improve it. To start with it’s worth checking your credit report to ensure there are no errors and reporting any inaccuracies to the reporting agency in question, along with any supporting documentation.

Other things you can do to get that important score a little higher include:

• Lowering your credit card limit
• Limiting how many applications you make for credit
• Paying your rent or mortgage and bills on time
• Paying any existing loans including your credit card on time each month and ensuring you either pay in full or more than the agreed amount.

Before you can look at making improvements, the first course of action of course is to request your credit report so you can keep an eye on that magic number.

If you’d like to talk to us about getting in the best possible position to secure the best deal, please give us a call.

i https://www.creditsavvy.com.au/press-centre/credit-savvy-urges-australians-comprehensive-credit-reporting-nab

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