Credit rating – we know it gets checked during a loan application, but do we ever look into the health of our credit rating ourselves? It turns out, not so much. Recent research performed by CreditSmart revealed 6 in 10 Aussies have never checked the health of their credit report.1
Lenders use your credit rating to assess the risk of lending you money. Credit scores generally range from 300 to 850 (the higher the score, the more credit worthy you are) and help lenders determine how likely you are to pay back your debt. A poor credit rating can also mean missing out on achieving big dreams like accessing a home loan, so it’s vital to keep on top of it. Different credit reporting bureaus use different bands to rank credit scores, so it’s a good idea to read up on them.
Here are 5 smart tips to help keep your credit rating healthy:
1. Understand what goes into your credit report
Your credit report shows lenders personal details like date of birth, address, licence number and employment history – plus, how you manage your debt and if you’ve ever defaulted on repayments. It also shows:
- The type of credit accounts you hold – some credit accounts are rated more favourably than others. For example, a home loan tends to be assessed more positively than a credit card.
- Your repayment history – missing one payment shouldn’t impact your rating. But missing a few across a number of loans will be a red flag to your potential new lender.
- Your credit limits – even if you’ve paid off most of your credit accounts, the full amount of credit you hold is what lenders see as part of your negative assets.
2. Do an annual health check
Just like an annual check-up with your GP, checking in on your credit health is important too. You can access your credit score for free through services like illion, Experian and Equifax – but some of them limit you to one per year.
An annual health check will:
- Help you plan ahead, so you’ll be in a good position when the time comes to apply for credit or a loan, increasing your chances of getting approved
- Highlight any errors you may need to fix, for example, suspicious listings on your report which could negatively impact your rating. You can get any errors fixed for free.
- Help you check that no one is using your name or identity to borrow money. Learn more about protecting your identity here.
3. Manage your credit responsibly
Your credit score can change even if your financial habits haven’t. There is a range of things that can impact your rating, besides your payment history.
- Too much debt – lenders may see having a number of different loans to pay off as a risk.
- The amount of credit you’re using – if you’re too dependent on your credit, lenders might assess you as high risk. Accessing more than 30% of the credit you have available could leave a negative impact on your report.2
- Hard inquires – lenders may consider you as a higher risk customer if you make multiple hard inquiries in a short period of time, as it suggests you may be short on cash. Consider spreading out your credit card applications.
- Default / late payments – missed or late payments, loan defaults, exceeding credit limit all count as negative information which can reduce your rating.
4. Be smart when applying for credit
Reports show when and how many times you tried to access credit, and this can impact your rating. To avoid this:
- Only apply for credit when you truly need it
- Do your research
- Compare credit options, looking at fees and charges
- Pick a lender with products most suited to your individual needs.
5. Borrow within your means
Most importantly, only borrow what you can easily afford to repay. This will ensure your repayments don’t become unmanageable.
- Use our borrowing power calculator to check your limits
- Be realistic with your living expenses
- Prioritise repayments
- Accept a smaller credit limit whenever possible
- If you’re experiencing hardship and struggling to make repayments, speak up. There may be a solution to help you over a hump.
Keeping your credit rating in a good shape is a crucial step towards financial health, especially if you’re looking to apply for a mortgage in the near future. If you’re dealing with an imperfect credit history and looking to purchase a home now, speak to a Lending Specialist on 13 73 77 today or enquire online and we’ll call you back to chat through you options.
This article provides you with factual information only and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser. Neither Pepper nor its related bodies, nor their directors, employees or agents accept any responsibility for loss or liability which may arise from accessing or reliance on any of the information contained in this article. For information about whether a Pepper loan may be suitable for you, call Pepper on 13 73 77 or speak to an accredited Pepper Money broker.
All applications are subject to the credit provider’s credit assessment and loan eligibility criteria. Terms, conditions, fees and charges apply. Information provided is factual information only and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser.
©Pepper Money Limited ABN 55 094 317 665; AFSL 286655; Australian Credit Licence 286655 (“Pepper”). All rights reserved. Pepper is the servicer of home loans provided by Pepper Finance Corporation Limited ABN 51 094 317 647. Pepper Asset Finance Pty Limited ACN 165 183 317 Australian Credit Licence 458899 is the credit provider for asset finance loans.