New Idea finance expert, Evan Lucas explains what your credit rating actually means and its impact on your finances…
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Your credit rating is a score based on personal and financial information, and is calculated using the following:
- The amount of money you’ve borrowed
- The number of credit applications you’ve made
- Whether you pay on time
- Whether you have defaulted in the past
- Whether you have overdue loans
These are placed into a calculation that, depending on the reporting agency, will create a ‘credit score’ of between zero and either 1,000 or 1,200. This ‘score’ is your ‘credit worthiness’. In other words, whether you are a risk to a lender or not. The higher the score the less risky you are, the lower the score the riskier you are.
This is important because the better your rating, the better the deal you are likely to get from a bank or lender. The better the deal on your loan, the more you save. The more you save, the better your financial position. This is why knowing your credit rating is important as it directly affects your whole finances, not just your ability to borrow.
Your credit rating looks at:
- All applications for credit cards, store cards, home loans, personal loans, Buy Now Pay Later and business loans from the past five years
- All payments on credit cards, loans or bills, and whether you paid on time or not for the last two years
- Anything you owed to the total of $150 or more that is/was overdue by 60 days or more will stay on your report for five years.
How can you fix this?
- Check for errors:
- Has anything been doubled up (applications, etc.) or is larger than the actual amounts (loan sizes, debts, etc.)?
- Are any credit issues over 60 days incorrectly listed (did you actually pay them off before 60 days?)
- Are any disputed debts listed?
- Are there accounts or debt there because of identity theft?
If your report has any of these, contact the rate agency and get them removed.
You can also improve your rating with these simple steps:
- Lower your credit card limits
- Pay for your reoccurring outgoing on time (rent, mortgage, utilities, phone and internet, etc.)
- Limit how many applications for credit you make
- Pay some or all of your credit card, on time, and each month
Doing these things will improve your credit score over time, which will increase your likelihood of being approved the next time you apply for a loan or credit.
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