Everyone wanted A’s in school. We get it; we were the same. And although those report cards don’t matter anymore, there is still one that does. If you were asked about your credit score, would you have any idea of what we were talking about? We’d hope so.
But, if that’s not the case, not to worry.
Part of our job is to explain it all to you so you’re not fumbling through your finances like some of us would fumble through class; having no idea what was going on and not saying a single word.
A credit score is important. It’s the number based on an analysis of your credit file, which helps a lender determine your ‘creditworthiness’.
This number is used by credit providers (such as banks and credit unions) in deciding several things. From here, lenders attempt to work out if they should ultimately give you credit or lend you money. They must also decide how much they will lend you, and your score can also influence what interest rate is offered to you.
Now you might’ve done some maths in school, but these calculations are a little different to your classic algebra and long division. When calculating your credit score, all of your personal and financial information will be used and documented in your credit report card. This includes:
- Your details (such as age and where you live)
• The type of credit providers you have used (e.g. bank or utility company)
• The amount you have borrowed
• The number of credit applications and enquiries you have made (successful & not)
• Any unpaid or overdue loans or credit
• Any debt agreements or personal insolvency agreements relating to bankruptcy
But let’s not forget from September 2018, various credit providers and banks required additional information about credit products on each credit report. This will help paint a more comprehensive picture to credit providers about someone’s credit history.
This information includes:
– The type of credit products you have held in the last two years
– Your usual repayment amounts
– How often you make your repayments and if you make them by the due date.
From here, credit providers will calculate your score and rate it on a five-point scale (excellent, very good, good, average and below average). Depending on your position on the scale, it will ultimately depend on how risky it is to lend to you. Some credit score websites display your score over different scales – some from 0-1000, others 0-1200 and so on, but each will give you a coinciding score similar to that of the credit providers (excellent, very good, good, average and below average).
Now although this report card is a little more than your average A, B and C, we know you still want (and generally will need) ‘Good’ and above.
If you want to learn a little (or even get your credit score for free) check out Money Smart from ASIC. And whether you’re up to speed with your credit score or not, have a chat with one of our specialists to understand your position: call 1300 469 840 or send us an email.