Why Your Credit Score is Important
Your credit score is used as an indication of your creditworthiness, telling potential money lenders what type of credit customer you have been in the past and what kind of credit customer you might make in the future.
Different financial institutions have different ways of scoring a credit applicant and if you are considering applying for something like a personal loan, a line of credit or a credit card then it may be worth speaking to your new credit provider about how they score their applicants before you submit your application. This can help you better understand your borrowing power as a credit customer and possibly help you negotiate better conditions for a new credit product such as lower interest rates, better loan terms, etc.
How credit scores are determined
The information used to create your credit score is taken from previous credit products you have had in the past and your credit score will be between zero and either 1,000 or 1,200. How much you have borrowed and how you have repaid previous credit is all stored on your credit file, as well as how many previous applications for credit you have made and been denied.
What your prospective lender sees in your credit report
Your credit report will show the following information to money lenders:
- Who are you indebted to
- How much credit you currently have
- Default notices lodged against you from a previous credit provider
- Repayment history
- Credit inquiries
Improvements in credit reporting
Fortunately, recent changes to what’s included on your credit file have helped to provide credit providers with a more complete picture of an individual’s credit worthiness.
Previously, only your listed defaults or problems were noted on your credit file but now there is more information about how you have dealt with credit problems and what your most recent credit history has been.
Your credit file, including things like payment plans and your most recent credit behaviours, helps lenders understand where you’re at right now, financially speaking, rather than only where you might have been for a little while.
Obtaining your credit score
If you’re interested in what your credit file actually says about you then there are a lot resources online you can use to not only get a copy of your credit history but to also understand what it says and how it’s used by credit providers to assign you a credit score.
They don’t usually take very long to get, sometimes your credit information is returned to you in just a few minutes. You’ll usually be asked to agree to their marketing terms and conditions, such as how you agree to have your personal information shared, but you can normally opt out of these agreements afterwards. It will also list things like your date of birth, your driver’s licence number (if you have one) and your current and previous addresses.
Know more about your finances
MoneySmart is an Australian government initiative and a project of the Australian Securities & Investments Commission (ASIC). Its aim is to help educate Australians about how to manage money effectively and efficiently and includes things like a personal loan calculator as well as tips and strategies for either maintaining a good credit file or for repairing one that could be better.
MoneySmart suggests that you should check your credit file at least once per year. Regularly checking your credit file allows you to:
- Ensure that all of the information listed against you is accurate and true, such as the current debt that you have, who it is with
- Ensure that your personal information are up-to-date.
- Better understand your financial position should you want to apply for any credit products
- Stay on top of how your identity is being used
If you do notice anything that is either wrong, outdated or potentially suspicious then you should contact the credit reporting agency that you have used to get a free copy of your credit file and ask them to address whatever problem you have found. It should be completely free for individuals to have any mistakes listed in their credit history to be amended.
How to maintain a good credit score
The best way to ensure that your credit history remains stable and your credit score is as high as it possibly can be is to meet your payment obligations on time. Paying bills and other credit products on time makes the best impression on credit providers and will show them that you are a reliable credit customer and present a low risk for new credit products. Paying a little bit more than the minimum repayment is also a good sign for credit providers that you’re financial stable.
Go for upfront and transparent credit products
MONEYME is an Australian online money lender specialising in personal loans over up to $50,000 and the Freestyle virtual credit card, a Mastercard account available for balances of up to $20,000.
MONEYME will carry out a credit check as part of your application process but they are quick to ensure applicants that the more information they have about your current financial circumstances, the more informed their approval process becomes.
MONEYME is able to offer quick approvals because they electronically verify your details in a matter of minutes once you submit your application online. They aim to have your new funds to you fast, which could be within the hour. Apply online today.