Financial Education Series

How familiar are you with your credit score?

Your credit score is a number that represents your creditworthiness. It’s based on your credit history and is used by lenders to determine whether or not to approve your loan application and at what interest rate. A high credit score means you are less of a risk to lend to and will likely qualify for better terms and lower interest rates.

So, how well do you know your credit score? If you’re like many Australians, the answer is probably “not very well.” A recent survey revealed 73% of Australians don’t know their credit score. The research shows almost half (48%) of Australians have never checked their credit score, 7% are too scared to check and 6% don’t know what a credit score is.

How to check your credit score?

If you’re not sure of your credit score, it’s easy to find out. There are a number of score providers in Australia, such as ClearScore, that will give you your credit score and report for free. If you’re looking to apply for a loan, it’s a good idea to check your credit score in advance so you know what you’re dealing with.

Tips to improve your credit score:

Managing your credit score can be a tricky task, but it doesn’t have to be a daunting one. Here are a few tips to help you improve it:

1. Timing is everything: Late payments can really damage your credit score, so make sure you always pay on time. Set up automatic withdrawals to ensure you never miss a payment.
2. Apply smart: Too many credit applications in a short period of time can raise red flags for lenders. Space out your applications and wait at least six months between them to increase your chances of approval.
3. Check for errors: Review your credit reports regularly and dispute any errors you find. This can help improve your score and ensure all the information on your report is accurate.
4. Be mindful of credit limit utilisation: It’s important to use credit responsibly and not overspend. A good rule of thumb is to keep your credit limit utilisation rate below 30%.
5. Diversify your accounts: Having a mix of credit accounts (credit cards, loans, etc.) can help improve your score. As long as you make payments on time, adding another type of account can benefit your score.
6. Take control: Doing a financial check-up can help you take control of your spending and borrowing habits. Start budgeting and be aware of your financial situation to make the necessary adjustments. Remember, slow and steady wins the credit score race.

Why is it important to know your credit score?

It is important to know your credit score because it can have a significant impact on your financial life. A high credit score indicates to lenders that you are a low risk borrower and are more likely to repay your loans on time. This means that you will likely qualify for better terms and lower interest rates on loans, such as mortgages, car loans, and credit cards. On the other hand, a low credit score may result in higher interest rates and less favorable loan terms, making it more difficult and more expensive to borrow money.

Knowing your credit score can also help you identify and address any errors or fraudulent activity on your credit report. It’s a good idea to check your credit score regularly, so you can detect and resolve any issues as soon as they arise.

Additionally, by understanding your credit score, you can take steps to improve it. This can include paying your bills on time, reducing your credit card balances, and limiting the number of credit applications you make. By improving your credit score, you can qualify for better loan terms and lower interest rates in the future, which can save you money over time.

Knowing your credit score and understanding how it is calculated is crucial to achieving financial success. Remember, your credit score is not set in stone and can be improved with time and effort. So, take charge of your finances, stay on top of your credit score, and watch your financial future soar!

General advice warning

This article contains general advice and does not take into consideration your personal circumstances. All strategies and information provided on this website is of general advice only. We recommend you seek personal financial and taxation advice prior to acting on this information.

Sources:

https://www.finder.com.au/aussies-dont-know-their-credit-score