What Are Credit Scores Good For?
A credit score is a number that defines your financial standing. Banks, credit cards companies, landlords or money lenders use this number in order to determine whether you are a good customer for them or not. If you aren’t trustworthy from a financial standpoint, they expose themselves to risk in getting you to pay what you owe them.
Many of them prefer not to take such customers. Even if they do, they will ask for higher interest rates or fees, as they have to compensate for the risk that you may not be such a good payee.
How Am I Scored? Who Decides What I Am Worth?
In Australia, credit scores are calculated and reported by two main organisations: Dun & Bradstreet and Veda Advantage. Their reports are public for the lenders to be able to see the risk you pose to them. The higher your score, the more trustworthy you are, therefore, lenders want you to be their customers. This is reflected in lower interest rates.
Veda is the most popular of the two systems. It is used by most lenders, mortgage brokers and public institutions. Their credit score scale starts from -200 and goes up to 1200. To give you an example, if you have a credit score of 200, this means you have a 50% chance to have a negative credit event within the next year.
How Do You Find Out Your Credit Score?
Whenever you need a loan, this is the first question that comes to mind: “What is my credit score?” In Australia, both the lenders and the individuals have access to this information. You can access and save a copy of your credit file. You also need to know how to read it and how to interpret the information inside.
If you have applied for any credit within the past five years, you do have a credit file, also known as a credit report. This report can be your best weapon as it contains your dealings with credit providers, as well as your history of credit applications and overdue debt.
How Can I Get A Copy Of My Credit Report?
You need a copy of your credit report because it can help you negotiate better deals when you want to borrow money from banks or various other lending institutions. Credit report copies are usually free of charge and you can request yours once every year. Just Google Veda and request your copy. They are going to ask you a few personal questions in order to be able to issue and send you the credit report.
The main use of credit scores is for banks and lenders to calculate what interest rate to offer you, should you want to borrow money from them. Applying for a mortgage is one of the most important situations in which your credit score could prove to be extremely useful. However, if your credit score is rather low, you may encounter difficulties in getting your mortgage approved.
Another use of credit scores is for background checking purposes. Some institutions use this method of checking on applicants for their job openings.
Look Before You Leap!
It’s not a bad idea to try and repair your credit score before applying for a mortgage or a big loan. The better your credit score, the more chances you have to get approved. Moreover, you are going to benefit from lower interest rates, so don’t overlook this opportunity to save some money for the long term.
Unfortunately, repairing your credit score cannot happen overnight. In order to be as effective as possible, it’s best that you find a specialist to give you advice and to analyse and correct your personal finance management habits. You need to develop a plan for repairing the credit score; then you have to stick to the plan until you reach your goals.
Ways To Improve Your Credit Score
The first thing all experts will tell you is to always pay your bills on time. If this is impossible, one solution is to contact the creditors and make personal arrangements with them in order to agree with a payment plan where your resources allow you to stick to it. Creditors want their money back, so they will most probably be willing to communicate with you and agree on some sort of schedule that suits you best.
If you stick to paying your bills on time, this simple action will lead to the improvement of your credit score.
Should you have outstanding debt which you are behind on, you need to try and catch up with all those payments and strive to stay current from now on. As time passes, your old debt will have less and less impact on your credit score.
Consider Debt Consolidation
If you have multiple debts with various interest rates, it makes sense to try and consolidate them into one single loan, with a better interest rate. It will allow you to have a better tracking of your expenses, and it will make it easier for you to cope with the monthly payments.
Don’t believe anyone that promises you to fix your credit score overnight. Such things aren’t possible, and you risk being the target of a scam. Be patient, slowly work your way out of debt and be persistent in your actions. In time, your credit score is going to improve and you are going to become debt free.