How To Find Out Your Credit Score (And Why You Definitely Should)
They say that knowledge is power – and this certainly applies to being aware of your credit score. We look at why you should care about your credit rating, and how you can ensure yours stays at the top of its game.
When it comes to ‘unimportant things to push to the back of your mind’, your credit rating tends to be right up there with your HECS debt and that dirty sock that slipped down behind the washing machine. But it turns out that unlike the recommended serving size on a Nutella jar, your credit score isn’t just a mythical number to be ignored.
Knowing you’ve got a solid reputation with the bank will give you the confidence to apply for home and personal loans without the possibility of having to deal with the sting of rejection.
So what is a credit score?
You know how Santa has a list to check who’s been naughty or nice? Well, so do credit providers: it’s called your credit report. Put simply, this is a record of your financial history. It includes personal info like your address and date of birth, as well as what types of credit you use and how good you are at managing it.
Do I have one?
If you’ve applied for a credit card, loan or even a mobile phone plan in the last five years, then chances are you have a credit score.
Why does it matter?
The point of a credit rating is to provide lenders with the proof that you’re able to pay back what you borrow, so they don’t perceive a risk in giving you a loan. Your credit report is a measure of the level of associated risk in lending to you.
How can I find out what mine is?
Thanks to websites like Credit Savvy or GetCreditScore you can check your score instantly and for free. All you’ll need is one form of government-provided ID, like your driver’s license or passport number. In less than a minute, you’ll have your rating, full credit report card and tips and tricks for improving your score. You’ll also be emailed monthly credit score updates, so you can check how you’re tracking.
It’s good to be aware of your score. Applying for a loan or credit card limit increase without knowing it can be a vicious cycle. If a credit provider decides your rating isn’t up to scratch, they may reject your request – but these declined applications are added to your file, which can make your score even worse.
What score should I be aiming for?
In Australia, the average credit score is 760, placing it in the ‘very good’ category.
Anything higher than 833 is considered excellent, while very good is 726 to 832; good is 622 to 725; average is 510 to 621 and below average is 509 or less.
All lenders have different expectations for credit scores, but shooting for the ‘good’ category will help put you on the front foot.
Um, mine’s not great. How did this happen?
There’s a few reasons you may have ended up here. Have you paid your phone, gas or electricity bill more than 60 days late? As of March 2014, Australia uses a comprehensive credit reporting system that tracks not just if you pay but when you pay your bills.
Have you made multiple enquiries for credit cards in the last five years? Every time you apply for a loan, a credit card or a mortgage, an enquiry is logged on your credit file. So if you’re making multiple enquiries it isn’t the best look – you’re essentially showing that you’re unable to get a loan so need to keep trying different avenues, and that implies financial stress.
So you might think that paying things a little late, or trying a few different places for a loan isn’t a big deal, but these are just the type of habits that can negatively impact your score.
What will this mean for me? Do I need to chop up my credit card?
Nope, there’s no need to grab the scissors. In fact, the way to improve your credit score is quite the opposite: you need to use credit – but you need to do it effectively.
But first, you need to go into damage control mode, which involves clearing any outstanding debts. And if you believe that your phone or electricity company has unfairly listed an overdue account on your file, don’t be afraid to contact them and ask for an explanation. As soon as those have been sorted out, lenders will update your file.
The information will stay on your report for five years, but there’s plenty you can do in the meantime to improve your score. Read: it’s time to become a credit queen/king.
Does getting a good credit rating mean spending more money?
Unfortunately, no – repairing your score isn’t a license to spend. But when you do spend, the key is to use your credit card responsibly. The last thing you want is to find yourself in debt. Let’s avoid that one, shall we?
Putting all of your bills, groceries and petrol on your credit card and paying it off on time each month will help you restore a healthy score. It shows lenders that you’re able to stick to payment deadlines and exercise a certain amount of fiscal responsibility.
Now that you’ve fixed up any outstanding debts and have started using credit the right way, you’re well on your way to dazzling potential lenders with your score.
What can I do with my excellent score?
A good score will put you in a much better position if you need to borrow money to buy a house or car, or start your own business. Not only are you far less likely to be rejected, it will also help you score the lowest possible interest rate. Cheers to that!
Need more help with using your credit card responsibly and improving your credit score? Here’s more information about how you can seek financial advice.
Emma Norris is a Sydney-based magazine journalist and freelance writer. When she’s not playing with words, she’s either doing pushups or stuffing her face with pizza. You can follow her on Instagram @emmajnorris92
Lead image: Stocksy