You might not realise it, but every day, with every financial transaction you make, a credit file is being built in your name. It’s not as ominous as it sounds, but it is something to pay attention to.
Your credit report is one of the components used when lenders are assessing you for credit. This occurs with everything from applying for a new credit card right through to a mortgage application.
The data in your credit file is used to assign a credit score. The score ranges from 0 – 1200. The higher the score the better the credit profile. This rating can change over time which makes checking your credit report to ensure you have a good score and error-free record is one of the most important things you can do before lodging a mortgage application.
We suggest using Equifax to learn your credit score as this is the same report lenders will use. You can access a free report from Equifax once every 3 months. A customer initiated enquiry is considered a ‘soft’ enquiry that is not recorded on your credit report and will not impact your credit score.
There are three components that are assessed when compiling your credit file.
1. Enquiries
This is the number of times your file has been accessed with a view to obtain credit. It includes both approved and declined applications, as well as those that were withdrawn.
For example if your file has been accessed multiple times in a short period of time it suggests that initial applications were unsuccessful and required further attempts and this can be interpreted as having poor financial character.
2. Defaults and Judgements
This section lists any defaults, court judgments, or bankruptcies that the individual has had in the past. This includes information about the type of default (referred to debt collection) or judgment (referred to court), the date it occurred, and the amount owing.
3. Conduct on liabilities
This section provides information about your conduct with credit, including any missed or late payments, as well as your overall level of debt. It also includes details about any credit agreements that the individual currently has, including the credit provider, the type of credit, and the credit limit or balance.
By making it a habit to regularly check your credit rating, you can ensure that the information contained in your credit report is accurate and up-to-date. This can help you identify any errors or inaccuracies that could be negatively impacting your credit score, allowing you to take steps to correct them.
If there is something on your credit file that is incorrect you can approach the company involved directly. If a debt is listed twice then you can contact the credit reporting agency. If the debt is with a credit provider you will need to contact them.
Over time it is possible to repair your credit score. Here are some things you can do that will assist:
- lower your credit card limit
- limit how many applications you make for credit
- pay home loan, personal loan and credit card on time
- pay your utility bills on time
- close any high interest rate loan (such as fast and payday loans)
- reduce and if possible eliminate usage of Buy Now Pay Later services (be sure to close the accounts)
- if you have defaults, speak with the company and negotiate to have it removed
Understanding your credit rating can help you make better financial decisions. For example, if you know that your credit score is low, you may decide to focus on improving it before applying for credit, rather than applying for credit and potentially getting rejected, which could further impact your credit rating.
Overall, knowing your credit rating can help you better manage your finances and improve your chances of getting approved for credit when you need it.
For more info:
You can access your free Equifax credit report here: equifax.com.au/personal/products/credit-and-identity-products
Select the free option to get started.
The moneysmart.gov.au is a great resource and worth checking out.
