What Is Your Credit Score And What You Can Do To Improve It

There’s a number out there that summarises your entire financial history – the good, the bad and the ugly. It’s called a credit score and if you haven’t seen yours before, you should! More than a million Australians are now empowered with their credit score and it can be a great way to get a better deal when you’re borrowing money.

What's a credit score?

A “credit score” is a number that represents how trustworthy you are as a borrower, i.e how likely you are to pay off a loan. A higher score means you have a good credit history, and are generally more credit-worthy (or less risky). Your credit score is one of the key inputs that many banks use when deciding whether to lend you money or if they should increase the size of your credit limit. It’s also used any time you apply for a personal loan, credit card, or mortgage, and can impact a growing number of other transactions.

For example, whether you qualify for in-store financing when making a large purchase or to determine your eligibility for some utilities or mobile phone plans.

Why do I need to know it?

The banks know your score, so it’s a good idea that you do too. A strong credit score can increase your confidence when applying for credit as lenders use this information to decide if lending you money is worth the risk. It can also influence the terms that the lender may offer so can save you money with some lenders. If you discover your score is lower than you thought you can make the necessary changes to improve it over time. A low score can also be an indication that you have fallen victim to identity theft or have a number of errors on your credit report. Either way, it pays to know your score.

How do I find out my score?

You can get your credit score using SocietyOne's free credit score service, or find out more from a credit bureau.

How do I improve it?

1.  Be a borrower, but a responsible one!

Having no previous history of credit isn’t reassuring for borrowers as they don’t know whether you are a responsible borrower or not. You can start building a credit score with a mobile phone plan, or having utilities such as gas, electricity or internet registered to your name and address.

2.  Pay your bills on time.

Lenders want to see a proven track record of responsible borrowing so paying your bills on time is important. An overdue payment over $150 may appear on your credit report after 60 days, damaging your credit score; and it will stay there for five years!

3. Avoid too many hard credit enquiries.

A hard credit enquiry is when a lender makes an enquiry to a credit bureau on your credit worthiness. Ironically every hard credit enquiry actually damages your credit score and lenders view them negatively because a lot of enquiries suggest that you’re desperate for credit and not managing your finances well.  A “soft” enquiry is where you request your own credit report or when you request a quote with some lenders.

So, it’s better to get a quote with a lender that uses a soft call or be confident, by knowing your score, that you’ll be approved.

If you’ve been turned down for an application, wait a while before trying again. Lenders are more inclined to disregard events in the distant past. This means that even though enquiries stay on your report for five years, listings from more than two years ago are considered much less relevant than more recent one.

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