The advice you may not be expecting to help get your first loan

I was chatting to Son #3 the other day about getting a loan.

My first advice was to read a great article by Canstar journo Alasdair Duncan that will set you up well.

Next I told him to focus on building a good credit score. Not only can it help you get approved for finance when you need it, it can also help you get your hands on better deals and understand whether you have any blips on your record you should work on improving to avoid disappointment later.

Now for some Aussies this is a newer concept.  That’s because it’s relatively new here.  In the US and the UK it’s a big deal and has been for years.  People even put their scores on their resumes when they’re applying for a job, and it’s not unheard of for some people to use credit scores as a way to screen possible dating candidates!

So the game in town if you want to be approved for a home loan, personal loan, car loan or credit card is to have a good credit score – and a job.

So, what is your score? In a nutshell, it sums up your recorded financial history into one number and this is one way lenders make a call on whether to lend you money.

You can easily check your score for free with us, as we partner with one of Australia’s biggest credit reporting agencies to offer this service for consumers. You’ll need to have ID like a drivers license so the credit score company can find you. You can also see your credit summary which can be quite revealing.

Scores range from zero to 1,000 or 1,200 (depending on the credit reporting agency being used), with a higher score being a good sign for a lender to consider approving a loan.

Now, here’s some advice you may not expect.  You would have seen many money experts warning young people against taking out credit cards or personal loans.  And that is true if you let them get out of hand as I have talked about previously.

I have a slightly different take – I have found a good way to improve your score can be to have a low limit card or loan, use them wisely and pay them off on time! And I can’t stress this bit enough – priding yourself on not spending more than you earn is one of the best money lessons you’ll ever learn.

It’s also worth knowing your score can benefit from having a low limit card and not spending on it at all. This still shows you can ‘handle’ credit well, and can be a good option for those who struggle to pay it off on time.

It will also help you demonstrate you are financially responsible – and that’s what a credit score is trying to measure. Lenders use the results to make a call on whether you’re a safe bet. What are the chances you will pay off your loan when they need you to?

The other important way to improve your score is to always pay your bills on time.  I’m particularly talking about your power bill and your phone bill.  Believe it or not, the credit score companies are told if you miss a payment.

One more piece of advice: don’t apply for a number of personal loans or cards at the same time.  It will actually reduce your score as it looks like you’re desperate for credit!

And when it comes to thinking through the eyes of a lender, try not to job hop too often – long-term, stable employment is typically seen as a good sign.

So, there you have it – a simple piece of advice that can go a long way when it comes to getting your first loan.

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