Unless you are the hardcore Bear Grylls, ultimate survivor type person living off the grid in the middle of the jungle somewhere unheard of, it’s likely that you will apply for credit at some point in your life.
You may think that if you don’t have much debt and pay your bills on time, you will have a good credit score. Unfortunately, it’s not quite as simple as that.
It is often only when a credit application is denied that we look into the health of our credit score, much like it’s usually a health scare that causes us to spring into action and make some serious changes in our lives.
We recommend taking action right here and now, so that when you really need credit, you are in a good position to get it (perhaps for the new iPhone 11?).
What is a credit score?
Your credit score is a number based on an analysis of your credit report, at a particular point in time, that helps a lender determine your credit worthiness. It is used by credit providers, such as banks and credit unions, to help them decide whether to lend you money, how much they will lend you and may sometimes influence what interest rate is offered to you. Your credit score is dynamic, meaning it may change from month to month as your financial circumstances change.
What is a credit report?
According to the Office of the Australian Information Commissioner (OAIC), a credit report is a document a credit reporting body produces using your personal information supplied by credit providers and other sources. Your credit report includes information to identify you such as your name, date of birth, address and employer. It also includes information about how you’ve handled any past or current loans or debts, and your repayment history. Your report may also contain information about any problems you’ve had meeting your repayment obligations, such as defaults, court judgments or bankruptcies.
So, where do you begin?
- Get your free annual credit report
If you don’t know where you stand, how will you know what to do? By going through your credit report, you will be able to identify any issues bringing your score down and address them.
Credit reporting bodies are required to give you access to your consumer credit report for free once every 12 months. You can also request a free copy if you’ve been refused credit within the past 90 days, or if your credit-related personal information has been corrected. At any other time, a fee will usually be charged.
Each credit reporting body monitors different things, so there isn’t a single central database where all your information is stored. This means you may have a good credit report with one body and a bad credit report with another. You may need to request a copy of your credit report from each body to get a full picture of your credit health. The bodies to contact are Equifax, Experian and illion – their details are listed on the OAIC website.
2. Identify any issues in your credit report
There are those issues which are due to errors that you have no control over and those that are due to something you did or didn’t do.
Issues out of your control may include:
- Identity theft – someone steals your identity and takes out credit in your name.
- Mistaken identity – there are many people with the same name or other personal details, which means there could be mistakes made in credit providers’ records.
- Previous occupants – you could get billed for goods and services used by a previous occupant of your home or property.
- Credit provider clerical error – e.g. they list you as having defaulted without notifying you of the debt, when you haven’t defaulted, or while a debt is still in dispute.
Issues within your control may include
- Change of address – you moved or changed your email address without notifying the credit provider and therefore did not receive a bill which then became overdue.
- Late payment – you paid a bill past the due date.
- Part payment – you didn’t pay the full minimum amount due.
3. Rectify the issues identified in your credit report
If you find an error in your credit report, start by contacting the business that claims to have provided you credit or the credit reporting body itself. Usually this can be resolved directly with them, however if you need further assistance, you can contact the Australian Financial Complaints Authority (AFCA) to submit a complaint.
If there are issues that involve your own financial behaviour, put steps in place to ensure payments are made on time and in full, e.g. setting up direct debits so payments are made automatically without you having to remember to pay them. In some instances, you can choose a direct debit date, so choose a date straight after you are paid to ensure there are sufficient funds in your account when the payment is processed.
4. Educate yourself on what impacts your credit score
You may not be aware that shopping around for credit could negatively impact your credit score. Even if you are just exploring your options, the credit reporting bodies may deem you to be risky, e.g. if you enquire about small personal loans frequently.
The MoneySmart website provides some practical tips on how to get a good credit score.
At FutureNow Finance, we can work with you to help you get finance ready. Contact us today if you’d like to discuss your situation. Call 1300 013 730 or email firstname.lastname@example.org.
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