What is a credit score? What is a good rating?
You may have heard the terms credit score or credit report, but what do they actually mean and how will they affect you? It's important to understand your credit score, it can help you when applying for a home loan or credit card.
What is a credit score?
A credit score is a numerical assessment which shows your credit trustworthiness. Essentially, it is a sum of all the information on your credit report, which includes your credit history, total amount owing, payment history, types of credit, and current/new credit.
The higher the score, the more credit worthy you are. A lower score means you have a bad credit rating, meaning you are less credit worthy. A scoring model with the range 300-850 is used to determine your credit score.
Here is a breakdown of the average score range:
Excellent: 750 and above
Good: 700 to 749
Fair: 650 to 699
Poor: 550 to 649
Bad: 550 and below
Why is it important?
According to research from GetCreditScore.com.au, only 15% of consumers are actually aware of positive credit reporting. This is a worryingly large number as it will affect the majority of us at one time or another in our lives. Your credit score will directly affect the amount of credit, interest rate and particular terms and conditions that a lender will offer you as a borrower. Lenders have a very transparent view of your spending habits. They can attain a comprehensive report of your risk profile by looking into various aspects of your history such as whether you are paying bills on time or keeping up to date with credit card repayments. They use this to form a wholesome view of your financial behaviour and make informed decisions on how much money they will lend you based on the probability that you will repay your debts.
Although a higher credit score is regarded more highly by lenders, a specific score does not guarantee that a lender will approve you for credit or give you the lowest interest rate. It helps you to figure out what you may be eligible to lend and what areas you may need to improve on before applying.
Where can I find my credit score?
You can contact a credit reporting body (CRB) to obtain a copy of your credit report. You should be eligible to get a free copy but no more than once a year unless you have applied for and been refused credit within the past 90 days.
Under other circumstances you may have to pay a fee to get the report and will be required to provide some personal details to enable them to properly identify you. This could include:
full name
address
date of birth
previous address
driver's licence number
If you'd like to check your credit score you may like to contact one of the national CRB's:
Equifax
Illion
Experian
To find out more about your credit score, speak to me today!
