Did you know that lenders will look up your credit rating to help them decide if they will lend you money or not? It’s not just lenders. It happens for contracts like mobile phone plans as well.
Your credit score is based on your personal and financial information from the past and will range between zero and 1,200. A higher score means you have a good credit rating and a lower score means you have a bad credit rating.
Why is your credit rating important?
Your credit rating is used to determine how much you may be able to borrow and the interest rate lenders charge.
This applies to mortgages, car loans, personal loans and credit cards. It’s all based on how risky you are to lend money to.
If you have a good credit rating, then a bank is more likely to lend you more money at a lower interest rate because they can see you have a history of making repayments on time.
This means you will find it easier getting a home loan or even a new car loan if you needed one.
But, if you have a bad credit rating, then a bank will be likely to offer you less money at a higher interest rate. The interest rate is higher because they see you as being a higher risk and want to ensure they get their money back.
How do I find out what my credit rating is?
You can find out your credit score for free. It will take a few minutes to do and they will ask you personal questions about your ID. Below are a few places you can go:
ASIC recommends avoiding anyone that wants to charge you to access your credit rating or asks for your credit card details.
What affects my credit rating?
One of the more common issues I’ve seen with credit ratings in the Aboriginal community is around mobile phones. One occasion someone signed up for a mobile phone plan and gave the phone to their cousin 12 months later to get a newer phone. But the cousin didn’t pay the bills and this had an impact on the original person who bought the plan.
Here’s a list of things that are good for your credit rating:
- Paying your bills on time
- Not applying for too many loans or credit cards
- Not missing any monthly repayments
- Paying out any older loans or debts.
And here are some things that are bad for your credit score:
- Making late repayments on your credit cards or loans
- Bills or payments that are at least $150 that are overdue by 60 days or more
- Applying for too many loans and credit cards.
What do I do if I have a bad credit rating?
If you find out that you have a bad credit rating, it’s a good idea to find out why. There may be a phone or electricity bill you didn’t pay when you moved out from your last house but changed providers.
I’ve seen several times where people have only found out about old debts or bills they didn’t realise they had when enquiring about their credit.
Once you identify what is causing you to have a bad credit rating, you can start to make changes. Improving your credit may take time depending on what the issue was with your rating.
If you feel as though you are in really bad debt and need some help, you can call the National Debt Helpline. Call 1800 007 007 to chat to someone about getting help with your bills. It’s free and you’ll get to talk to a qualified financial counsellor.
By Phil Usher