There are some numbers that help define your life, such as your body’s temperature, your bank balance, or your age. Usually, we are very aware and responsive to them – we stay in bed for a fever, don’t overdraw our accounts, and (mostly) act our age.
But there is one measure of your financial health that the banks and other credit providers have known quietly for years. This figure reflects your creditworthiness, but most people have never seen it or know it even exists until they are rejected for a loan or a credit card. This number is your credit score, also known as your credit rating, and it is based on your credit history.
I’m surprised by how many people are unaware of their credit score, when this number affects their access to and even the cost of credit. Not knowing your credit score is like not knowing your credit health. And if you don’t know either one, there’s little you can do to improve it.
So take the plunge, with free, reputable services such as Veda, Dun&Bradstreet, or GetCreditScore.com.au. It costs nothing, only takes a minute, and could end up saving you a load of unnecessary cost and worry.
What is a good credit score?
My VedaScore came in at 956, which according to the Veda credit bureau, is “Excellent”.
Having a good credit score doesn’t mean being a goody two-shoes
You might think that’s easy for me to say, given my high school. But I’m no goody two-shoes. Finding out my credit score was a nice surprise, particularly since as a consumer advocate I should be expected to practice what I preach.
It also helps to be somewhat boring and middle-aged with a longish history of managing credit cards and loans, as well as not having lavish tastes for speedboats, fast women and endless borrowing. My score, while respectable at the moment, could go down if I decided to borrow beyond my means and then was very tardy in repaying loans and meeting bills.
Sensible behaviour around finances does help improve ratings.
Like many others, I have been guilty of making late payments on a few credit cards over the years, more due to disorganisation rather than any impecunious behaviour, and usually by days, not weeks. But I’ve only had one or two cards at a time and rarely sought to extend the credit limits.
Applications for multiple cards and extending credit limits could contribute to lowering your score.
In addition, I’ve copped the odd late fee from the telcos and power companies. But unless your payment is over $150 and more than eight weeks overdue, it shouldn’t impact your score. Home loans are a big-ticket item and after several mortgages in my name over the years, there have been no defaults or failures to pay.
My good credit score means no surprises
My good score probably also indicates that there are no nasty surprises lurking in my credit report that could seriously send it spiralling south – things like payment defaults you don’t know about, or even credit card fraud.
For example, you might have had a utility account in your name in a shared house five years ago. Maybe you moved without cutting off the service, and your former flatmates clocked up big bills on your behalf. The utility company might not be able to track you down, but they can put a default on your credit file instead. If you don’t check your credit regularly, you could end up embarrassed when your home loan application is rejected because of it.
Less innocent are the identity thieves who get hold of some of your data, take out loans in your good name, and sneak away without paying. You might not even know about it unless you’re checking regularly to see if you still have a good credit score.
Your score is simply a measure of your past dealings with credit, your history of repayments, ability to handle debt and timeliness of meeting bills. It’s not defined by how much you earn or where you live. However, the less well-off might be more prone to juggling credit cards and using pay day lenders, which can lower your credit score.
So if you have a good credit score, it makes sense to maintain it and take advantage of it. Or, if your score could be better, you can start taking action today. It’s never too late to improve your credit health.
How to improve your credit score
For all you know, your credit score might be in tip-top shape and not need any work; but you won’t know that for sure until you get a hold of it. Christopher was kind enough to link above to the sites where you can obtain a copy of your credit score, so once you’ve done that, what’s next?
To look up your credit score and how to understand it, check out our article which explains all you need to know about cleaning up your credit rating.
If you’re perfectly happy with your good credit score, and feel that it requires no work, then congratulations! You can go off and celebrate responsibly, safe in the knowledge that your finances are in good shape.
However if your credit score isn’t quite where you’d like it to be, and you need some tips on how to improve your credit score, we’ve got you covered! We’ve got several articles on how to improve your credit score, such as this one.
One of the ways you can improve your credit score is responsible and consistent repayment of a credit card suited to your financial situation. Why not use CANSTAR’s comparison tool to find a more helpful credit card for you, and get your credit score improvement going?