Whether you’re a seasoned financial expert or just beginning to build your knowledge, you’re extremely likely to have a credit score already against your name.
How Does a Credit Rating Work?
If you’ve ever had a credit card, loan, interest free or sometimes even a phone plan, you’re likely to have contributed to your credit rating. Likewise, if you have defaulted on any of these or not paid your bills on time, it’s likely you may have negatively affected your credit rating.
A credit rating is a calculated number based on a range of logical values. The number is used as an indication or guide to the lenders to determine how risky it is likely to be lending money to you.
Banks and other lenders will manage their risk by avoiding anyone considered high risk. The lower the number the closer you appear to being bankrupt and are experiencing financial difficulties. A low number means you’re high risk of not paying your debts back.
A high value generally means that you’re trustworthy, have a good payment history and are likely to continue the trend on a future loan.
An interesting point to note, while your credit rating will detail the amount of debt you’ve applied for, your income has no real bearing on your score. Someone earning $1,000,000 per year is still going to have some issues and explaining to do if their credit rating is in the bankruptcy range.
What all this means is, your reliability of paying back your loans in full and on time have the positive affects on your score. Your income becomes important at the time of application to ensure you can service the loan. Once the loan is drawn down, you could lose your income completely and still maintain an excellent score as long as you meet the repayments. Your behaviour towards the debt under any circumstance protects your credit rating.
How to view your credit rating?
You can view your credit rating with fair accuracy via a few different websites in Australia. There are free services which can give you a mostly accurate view, and there are some very official companies which you can request your file from, some free and some charge a small fee.
Here are some of the websites we’ve used to get an indication of our credit scores;
- GetCreditScore – https://www.getcreditscore.com.au/
- CreditSavvy – https://www.creditsavvy.com.au
- Experian – https://www.experian.com.au
The great thing about these websites listed is that they all offer easy to understand credit rating resources, they’re free, and they’ve fairly accurate. The resources cover everything from explaining different terms through to how to improve your score and what things negatively affect your score. To use them, make sure you have your ID ready such as your drivers license.
We hope that this explanation is helpful and has inspired you to take some notice of how big companies are scoring you in the background.
What’s your score, and were your shocked at what you discovered?