It’s unfamiliar territory for many, but maintaining a good credit score is central to your financial well-being and your ability to access competitive financial products in the future.
According to new Finder research, 67% of Aussies believe a good credit score should be rewarded through cheaper interest rates on products such as loans and credit cards, yet the vast majority (82%) of us have never tried to improve it..
Interestingly, Aussies haven’t quite grasped an understanding of what a credit score is or how it can impact you financially. The research found that a quarter of Aussies thought that the following actions would impact their score:
- Bank balance
- Not paying their credit card off in full each month
- Checking their actual score.
In reality, none of these actions actually influence it.
So let’s dispel some myths to provide a better understanding.
- The lower my credit score, the lower risk I pose to the lender.
Many people think a low score means that they have lower credit risk. However, the reverse is true; the higher your score, the better your credit position.
- Checking my score will affect my credit rating.
Some borrowers believe they will be penalised for checking their score, this is simply not the case. In fact, you should get into a routine of regularly checking to ensure that the information is correct as well as to identify any credit issues you may need to rectify.
- Applying for several loans in a short period won’t hurt my credit score.
Despite popular belief, applying for several loans in a short amount of time can negatively impact your score. This is because lenders will see that you’ve made several credit enquiries and because they won’t see the outcome of your previous applications, they may assume you’ve been rejected multiple times. Obviously, this will raise a red flag for the lender.
- Having debt is bad for my score even if I repay my debt on time.
Again, this isn’t true. Taking out different types of debt, such as a credit card or a personal loan, can actually be a good way for you to build a repayment history as long as you manage the debt effectively by making your repayments in full and on time.
- A pay rise may improve my credit score.
Many borrowers believe that your salary and/or your earning capacity will influence your score. It’s a logical train of thought; the more money you earn, the greater your ability to service your debt. However, it doesn’t quite work like that. Your salary is in no way linked and receiving a pay rise won’t affect it.
Your credit score is a number that generally ranges from 0 – 1,200. This number is is used by banks to help them decide whether or not they should approve you for finance. Basically, it gives the lender a picture of your borrowing history. The higher the score, the better your credit position.
Use an online checking service to find out your score and be proactive about taking steps to improve it.
There are many ways you can enhance it, and the choices available to you will depend on your personal situation. For example, if you have a high credit card limit you may want to lower it or if you have multiple personal loans, you may want to consolidate this debt into one manageable repayment.
A healthy credit score may entitle you to lower interest rates as well as more favourable product terms on different financial products, so it’s worth doing the legwork!