Unlike Americans who often list their credit scores on their online dating profiles, most Australians are unaware of their credit score. More importantly, Australians are often unaware of how their credit score can impact their financial wellbeing.
A good credit score can be instrumental in accessing competitive financial deals and help to protect your financial future, and not having a good credit score can be a huge financial setback.
Here are four ways to benefit from having an excellent credit score:
1. Access to lower interest rates
When applying for a loan, a good credit score could mean the difference between a competitive rate or an average rate. For instance, when you’re applying for a personal loan, the lender will review your credit score and an untarnished score and a strong repayment history will probably lead to a lower rate. A lower rate, means lower repayments and the ability to repay the loan quicker, saving you money.
2. Increased borrowing capacity
A healthy credit score will also give you greater borrowing capacity, which will come in handy when applying for large amounts such an investment loan. The lender will review your credit score, credit history, total assets, total liabilities, income and expenses when determining your ability to repay a loan, and set the maximum amount accordingly.
3. Greater choice of financial products
A good credit score will open more doors to the range of financial products available across a wide range of borrowing products.
4. Shorter application process
A good credit score should also speed up the application process as the lender won’t require additional documentation to prove your creditworthiness.
So what affects your credit score and how can you improve it?
Often people think their score could be affected by the size of their bank balance, by checking their score, or by not paying their credit card off in full each month. In reality, none of these factors influences the credit score.
However, actions that will improve your credit standing include:
- Obtaining a copy of your credit file to check for any errors, and to identify areas that need improving.
- Ensuring you pay bills and make loan repayments on time. A pattern of late payments is detrimental to your score. Perhaps consider automatic payments.
- Avoiding making numerous credit enquiries in a short space of time. Do your research first, then apply for the most suited options for you.
- Keeping an eye on changes to your report. There are agencies you can register with to help do this.
- Advising your finance providers of any change to your address, credit card details, or financial circumstance.
Some other practical ways to improve your credit score are:
- Increasing savings by paying down debt (56%)
- Consolidating debt into a 0% balance transfer card (27%), and
- Taking out a new credit card to establish a credit history (25%).
Knowing your credit score and being proactive about improving it can go a long way to helping you achieve your investment objectives.
To access your credit score and to learn more about how it’s calculated, make the most of online tools so you can put yourself in the strongest position to obtain finance and achieve your financial goals.