How to keep your credit score healthy
Your credit score can play a key role in helping you take out a loan or credit card – so it pays to nurture your number!
Each of us have a credit score – a number out of 1,000 or sometimes 1,200 that tells lenders and even service providers such as phone and power companies, how often you’ve sought out credit and how well you’ve managed debt and credit in the past.
What determines my credit score?
Your credit score is based on your personal credit history. Credit reference companies maintain a record of the different credit products you have, how many applications for credit or loans you’ve made, and how well you’ve kept up repayments.
It’s important to note that lenders will often apply other criteria to make a decision on whether or not to give you a loan – the credit score isn’t the only factor considered however it can play a big part.
Using a variety of scoring methods, the credit reference companies condense the details in your credit record to a score between 1-1,200. A credit score is measured from below average to excellent. A score between 1-509 is below average, 510-621 is average, 622-725 is good, 726-832 is very good and 833-1200 is excellent.
What determines my credit score?
Your credit score is based on your personal credit history. Credit reference companies maintain a record of the different credit products you have, how many applications for credit or loans you’ve made, and how well you’ve kept up repayments.
It’s important to note that lenders will often apply other criteria to make a decision on whether or not to give you a loan – the credit score isn’t the only factor considered however it can play a big part.
Using a variety of scoring methods, the credit reference companies condense the details in your credit record to a score between 1-1,200. A credit score is measured from below average to excellent. A score between 1-509 is below average, 510-621 is average, 622-725 is good, 726-832 is very good and 833-1200 is excellent.
The higher your score, the better, as it tells lenders you have a good track record for managing credit.
How is your credit score calculated?
Your overall score is calculated from your personal and financial information that is recorded from lenders such as banks, credit unions and payday lenders 1 .
Canstar says that the information used to calculate your credit score includes your employment history, length at current address as well as what credit and loan products you have had previously, also when accounts have been opened and closed. The amount of credit or loan applications you have submitted is also considered, and whether you have been rejected from applications affects your record.
If you have applied for multiple credit products in a short period of time, this might flag that you are in credit stress which might negatively impact your total score. Another important factor that is considered is whether you have had any court judgments, bankruptcy or personal insolvency.
Be careful when clicking on links when scrolling through social media or looking at marketing emails promoting cheap loan or credit offers. When you click on these links, you are actually giving consent to the advertisers to perform a credit check on you. The next time you see a deal on these channels, you need to consider this and whether you would prefer to keep this information from them.
How can I check my credit score?
Easy! A number of online platforms let you check your score for free.
Head to sites like Credit Savvy, Illion Credit Check, Credit Simple or Finty to know your number. Taking a look at your score won’t impact either your score or your credit record.
How can I keep my credit score high?
Four easy steps can help your credit score stay in great shape:
1. Make payments on time
Credit scores take into account good behaviour like making debt repayments on time, as well as negative behaviour such as running late with payments.
Getting into the habit of making repayment by the due date will keep your credit score healthy.
Repeatedly falling behind with payments can put a few dents in your credit record. If you’re running late with payments, aim to make up the balance as soon as possible. Simply ignoring debt payments (known as a default) can do serious damage to your credit score.
2. Don’t take on more debt than you can handle
Overextending yourself with debt makes it a lot harder to stay on top of repayments. Keep life simple – and your credit score high, by limiting the amount of debt you take on.
3. Keep applications for credit to a minimum
Making multiple loan or credit applications can push your credit score down because it may suggest you’ve been knocked back by other lenders or are desperate for credit. It’s much better to shop around, and only apply for credit once you’ve found the product that’s right for your needs.
4. Go easy on buy now, pay later
Buy now pay later (BNPL) services may let credit reference companies know if you’re running behind with payments (and all other payments owed). The situation can become even more damaging to your credit score if your BNPL account is linked to a credit card, which could see your card issuer also report late payments. Again, it comes down to only making BNPL purchases that you’re confident you can pay off on time.
Your credit score can be a great asset when it comes to applying for low-rate loans or credit cards. Keep your score looking good, and it can help you achieve your goals!
Sources:
1 https://www.canstar.com.au/credit-score/credit-score-calculated/
Sources:
1 https://www.canstar.com.au/credit-score/credit-score-calculated/
Community First Credit Union LimitedABN 80 087 649 938 | Operating as Community First Bank | AFSL and Australian credit licence 231204| BSB 512-170