Planning on applying for a credit card, personal loan or (gulp!) mortgage? Even if you earn a healthy income, you’ve got your documents in order and your debts are low, there’s something that could harbour a nasty surprise and trip you up unexpectantly – your credit score. So, before you go cap in hand to a lender it’s best to check your credit score for yourself – and improve it if necessary.
Your credit score is held by independent credit rating bureaus. Different banks and financial institutions use different sources (or a combination), the main ones in Australia being Get Credit Score, Equifax, Experian or Illion. Checking your credit score is something you can do online for free, simply select a provider and follow the prompts.
Bad credit history
If, in the past, you have failed to pay, or been regularly late with, bill payments, credit card or other loan payments, your creditors may have reported you as a credit risk, and your ability to borrow money could be limited for up to five years.
No credit history
Equally, having no credit history (no credit cards, loan payments or bills) is also perceived as a credit risk. The reason being that you haven’t had a history of regularly meeting debt commitments, regardless of whether you have a healthy amount of savings in the bank. Seems ironic but unfortunately, it’s the reality of credit profiles.
So how do you improve your credit score and keep it clean as a whistle? Here are some important tips:
Pay all bills on time
Make it a discipline to pay all bills and repayments by the due date. No ifs, ands or buts. This includes electricity and phone bills, as well as credit card, home loan and personal loan repayments. You can automate these by setting up direct debits then kick back and relax knowing you’re guaranteed to avoid missing bill due dates.
Consider a credit product
You may be one of the few people who does not have a single credit card or personal loan. However, having a credit product (and being a stickler for making repayments on time) will help you build an excellent credit score. This could come in very handy if, in the future, you will be applying for a large financial product such as a home loan or you need to borrow funds for an emergency.
If you can’t pay on time, act immediately
Even the most highly responsible people can get into financial difficulty due to job loss, illness, natural disasters, divorce, or other unpleasant hiccups in life (like, you know, a global pandemic). If, for any reason at all, you cannot make a repayment or pay a bill by the due date, hop on a call to the relevant financial institution or company immediately and ask to speak with someone in the hardship department. You should be able to arrange a deferral, payment plan or other solution to get you through without damage to your credit score. Help is usually as simple as a phone call as hardship support is commonplace, it’s just that not many people know it’s available.
If your debts become unmanageable, seek help!
If you feel you are falling into a debt crisis and are having trouble dealing with each creditor yourself, you can get free advice and support through financial counselling services located around Australia. A financial counsellor can advise on options available to you such as debt consolidation and can negotiate with your creditors on your behalf. You can also contact the Australian Financial Complaints Authority (AFCA) for free and independent dispute resolution regarding your credit score.
So, check your credit score and resolve any issues as soon as you can as every little bit counts. A solid credit score is a golden asset for your future.
Content brought to you by Alex Bank
The content on this page is general information only, it is not intended to be advice or a substitute for professional financial advice. It does not take into account your situation, needs or objectives and you should consider whether it’s appropriate for your situation and seek professional advice.
Applications for finance are subject to Alex’s normal credit approval. Terms, conditions, fees & charges apply.