It’s a common myth that you need to borrow money to boost your credit score. It’s hard to know where this started. Was it a sales tactic used by the banks that spread, is it just confusion over the complexity of how the score is calculated? Well we are going to have a look at the things that matter.
Main Tips:
Paying all your bills on time If you take nothing else away from this article, you’ll still be fine with this gem! Paying ALL your bills on time is such a simple way to keep your credit score in the green. People underestimate how much this weighs on your credit rating. Particularly utilities such as phone, internet and power are often seen to ruin credit scores if they fall into default. If you are struggling with a bill, communication with the company is very important as they can often make allowances and extensions so they don’t get recorded as a default.
Check your score regularly You can go to Constar’s website (https://www.canstar.com.au/credit-score/) and check your credit score free of charge every 3 months. This is so important to protect you from fraud and make sure you can get on top of issues right away. I have seen people who moved house without knowing they were sent a last bill for a utility account they thought was finalised. This check is especially important to do if you are going through a marriage separation or relationship breakdown as this difficult time often leads to missed payments.
Stay away from payday loans While every application can temporarily drop your credit rating a small amount, regular credit enquires for short term loans, personal loans and credit cards can add some red marks that last a bit longer. As long as there aren’t too many enquiries in a short amount of time and a sign of mismanagement of money, most lenders are ok with these if there are no late payments. They may still want them closed.
Have an emergency fund Making sure you have a buffer account for emergencies and unforeseen bills is essential to make sure you are not putting yourself in a position to have to decide which payments you make and which ones you fall behind. If you find yourself dipping into these funds, make it a priority to top them up as quickly as possible.
What if I change my name?
One of the other myths to consider is, changing your name will not clear your credit score. Our credit score is tied to so much more than our name. So much information is collected. Credit checks are completed when you apply for a rental, phone plan, any credit facility and even some jobs depending on your industry. All of your current and previous names show up on your report.
Can my score be negative? It’s rare to see but, Yes! Your credit score can be so bad that it actually goes negative. Such dismal scores are normally found more in people who have been bankrupt or have judgements against them. Time and smart choices can heal all wounds and finance is no different. You can repair your credit score over time and there are businesses who can assist with this.
What if I Think I’m the victim of fraud?
If you do a credit check and find something wrong, firstly get in touch with the company who has recorded the enquiry or default and get as much information as you can. Let them know this was not you and go through the process of them removing it. You should put the information in writing, being clear and explaining what is incorrect. They have 30 days to respond. From that point you can contact AFCA (https://www.afca.org.au/make-a-complaint/credit-finance-and-loan-complaints) and lodge a dispute.
Does where I live matter?
There are very limited times where your postcode can effect your credit report. This is controversial (for good reason) however it is a very small impact and only on those who have very limited data may find that their location feeds into their score. I’ve only seen it once where there is a red mark due to the client living in a location associated with low credit scores and I’ve never had a lender concerned with that fact. Living in a lower social economical area may be a wise financial choice if it means you can save on rent, pay down debts and save for your future. Don’t be afraid that this choice will effect your score.
Will I be able to get a home loan with a bad score?
Short answer is, Yes! It will likely not be the amount or interest rate you wanted however there are lenders who don’t use credit reports. You may also find construction loans are not an option as the banks who offer construction loans often have stricter requirements, however it will depend case by case what your score is and why. If you find yourself deciding to settle for a higher interest rate, use this as a turning point to really focus on paying your bills on time, living below your means and paying down debt so you have the option to refinance later with lots of options.
So we can see there are so many layers to the mystery that is our credit score. Maybe some part of us secretly wants to believe that a credit card makes our score better. Some way of justifying a guilty pleasure but the reality it's just another bill we need to make sure we stay on top of. I myself had no issues getting a home loan having no debt, credit cards or those interest free loans the furniture stores do.
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