When you're looking to take out a loan, be it for a house, car or any major item, whether you're successful or not is based upon what's called a credit score. In short, a credit score is a rating that you're given based on your spending habits – such as whether or not you pay your bills on time, and how well you've managed to keep up with previous bill repayments and suchlike. The better your score, the more chance you have of being accepted for a loan, so it makes a lot of sense to ensure that yours is in good order.
Even so, the vast majority of Australians have no idea what their credit score actually is. According to credit analyser, Veda, a huge 78 per cent of us have never checked our credit histories, but we really should, as it could be the difference between that shiny new car or sticking with your current rusty scrapper. Here are three ways to give your credit rating a timely boost.
1. Be sure to pay your bills on time
Though it may seem painfully obvious, many people don't realise that every bill in their name, whether it's for their smartphone or household utility expenses, can affect their rating. This is because lenders want to be reassured that you are responsible with your money, and can regularly pay your bills on time. Failing to pay can be a big, black mark on your credit history, so pay very close attention as to when your bill payments come out, and ensure that there are enough funds in your account to cover it.
Failing to pay can be a big, black mark on your credit history, so pay very close attention as to when your bill payments come out.
In Australia, you're given a generous 60 days to pay an overdue bill (if it's over $150), but if you still can't make it after this period has elapsed, this stain will stay on your report for five years. It's a good idea to set up a Google calendar dedicated to bill payments to help you keep track – this way, you can never fall behind!
2. Keep your accounts nice and active
It's a common misconception that not actually having a credit card will give you a good credit rating. Far from it – having zero credit history means that lenders will have no evidence of your spending habits or ability to pay on time, which will automatically cause concern and perhaps put you in the higher bracket of risk. Proving that you can pay on time and are a responsible lender is precisely what lenders want to see, not a black hole of nothingness.
Not to worry – any kind of credit account is acceptable, no matter how small it may seem. This means that a monthly mobile phone bill or store credit cards will all count, so start off small and be sure to pay off the balance in full as soon as you can. As long as they are all registered to your name and address and you manage the accounts well, you can build a great credit history in a short amount of time.
3. Stay where your are!
This is a factor that is perhaps a little beyond your control, but it's still worth bearing in mind. If you change jobs frequently, or are continually moving house, then it can appear as if you are unsettled in life, even if you aren't. As such, you may be marked out as a credit risk when applying for a home loan or other credit, so it can really pay to stay in the same job for as long as you can. The same rules apply to your home – if you stay in the same place for years on end, you'll be looked upon as a settled, reliable prospect.
Be sure to get in touch with the team at CAPE to find out more about our various loan options.