Everyone has a credit score, and it can say a lot about your borrowing capacity. It’s essentially a rating that determines your perceived ability to repay debt based on your past credit performance.
Although everyone has one, many people don’t know their actual credit score. More importantly, you may be completely oblivious to the fact that simple payment delays, such as an overdue rates notice, potentially wreak havoc on your otherwise-good credit standing.
Here’s what you need to know.
Who determines your credit score?
Your credit score is determined by agencies appointed with the requisite authority by the Australian government. It’s managed pursuant to legislation that aims to protect credit providers and reduce the instance of bankruptcies in Australia.
Veda is Australia’s leading credit-reporting agency. The organisation calculates your credit score (or VedaScore, as they call it) by summarising your credit report information. It then ranks your credit against other Australians on a scale of 1 to 1200. The final number is your VedaScore. Your VedaScore is what lenders can use when assessing your application for credit, such as for a home loan, rental agreement or personal loan.
What kind of information are they collecting?
Credit reporting agencies collect information pertaining to your credit history. Your credit report may include personal details such as your name, date of birth, driving licence number and addresses. It may also include details of past loan applications (whether approved or not), overdue payments and any other credit infringements. What’s more, it may include dates when your loan repayments are due; whether or not you made the repayment dates; and court judgements and orders, debt agreements and insolvency agreements.
The agencies store the information for up to seven years, so it’s important to note that your past could have a real bearing on your current borrowing situation.
Why should I check my credit file?
It’s a good idea to sign up for a credit alert service or at least obtain a copy of your credit file each year.
Identity theft happens, and by keeping an eye on your credit report you can be notified if someone runs up debt on your credit card or makes a loan application in your name. If this happens, your best
bet is to immediately report the matter to the police. You should also let credit-reporting agencies know that the matter is under investigation and contact the Financial Ombudsman Service .
Sometimes, items may be incorrectly recorded on your credit file. A bank-processing error, for example, could result in a negative credit notation on your file. If this is the case, your starting point is to speak with the credit agency. After all, it might be a simple fix. Next, you should talk to your credit provider and explain why the listing is incorrect. If you feel the issue is not being resolved satisfactorily, you’re within your rights to notify the Financial Ombudsman Service.
If you find you’re still not getting anywhere, contact the Office of the Australian Information Commissioner ; at the end of the day, your privacy is at stake.
How can I improve my credit score?
Mortgage Choice’s Head of Corporate Affairs Jessica Darnbrough says that once you’ve cleaned up your credit report, it pays to start afresh.
“Put practices in place that will help to strengthen your financial history and establish you as a ‘good customer’ for future lenders,” Darnbrough says. These practices, she says, can include:
- Consistent savings: Every time you get paid, make sure you put some of it into savings
- Pay off all bills on time: Once you have cleared your debts, make sure you keep them that way. Be sure you pay your credit card bill in full every month and pay all of your other bills on time, every time
- Shut down unnecessary accounts: Do you have two or three credit cards? If so, it may pay to get rid of some or all of them. The more credit cards you have, the more inclined you’ll be to spend unnecessary money and create debt.
Ultimately, the best way to improve your credit score is through diligent credit management. Stay on top of your bills, live within your means and treat credit as a privilege rather than a given.
With proper credit management and a thorough understanding of your personal credit file, you’ll be able to maintain a healthy credit score for years to come.
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