When someone starts talking credit scores, do you hear a lot of “blah, blah”? Well, we’d like to help you understand what a credit score is, and why you should check yours out.
So why should you care about your credit score anyway?
Even if you don’t want a credit score, you have one — or will have one eventually. And the truth is, almost everyone has to borrow money at some point. Whether it’s to buy a car, house or anything else that you might not have the cash for up-front. Major life purchases usually require some form of credit, like a personal loan or a mortgage. And credit, finance, and even some Buy Now Pay Later providers, use your credit score to decide whether to give you that credit or lend you money.
A good credit score can be the key to finding a better deal.
A higher credit score means lenders may consider you less risky – which usually means you have a good history of paying your bills on time. It can mean that you may receive a better deal on your loan or credit application, thereby saving you money in the long run.
A bad or lower credit score means… you guessed it, that you may have a harder time applying for a loan or even get declined. Chances are, even if you do get approved, you may get charged higher interest rates because they consider you a higher risk. A really low score could leave you with no choice but to use high cost, predatory finance such as payday loans and rent-to-buy products.
What affects your credit score?
Most lenders and telcos, gas and electricity providers now report both your good and bad payment behavior to the credit bureaus who create your score. Pay your bills on time and you can rack up a great credit score. Miss bill payments or default on loans, credit cards, phone bills or utility accounts (or any other commitments) and it’s all reported. You will often be penalised with a low credit score and the negative reports can stay on your file for 5 years or more.
Did you know?
In Australia, there are three main credit reporting agencies: Equifax, Experian and Illion. Each of these agencies uses a different credit score range and they base those scores on the information in your credit report. You can apply for a credit report – for free – every 3 months from these agencies.
So what can do to earn a good credit score and what can result in a bad score?
The good:
- Pay all your bills – on time! Phone, electricity accounts, credit cards, loans, BNPL repayments – they all count!
- Weirdly, if you don’t have some form of credit, it’s hard to build a good credit score. Showing you can manage debt is a positive thing for your credit score. So, holding onto that credit card you use for emergencies could actually positively impact your score – just remember to pay the bill on time!
- If you have existing outstanding defaults on your credit file, pay them off. Paid defaults show up differently on your credit report and demonstrate that you take your commitments seriously.
The bad:
- Not paying your bills on time will be reported and your score can be negatively impacted.
- Defaulting on loans or credit cards is really bad and will definitely drop your score. Defaults are a black mark on your credit report that follow you for years. Most credit providers will not lend to anyone who has a history of defaulting on loans.
- Making lots of applications for credit can hurt your credit score. It can indicate that you may be struggling for cash and you could be considered a higher risk.
Court actions or judgements are also bad. Try to avoid doing anything that may result in you being sued for an unpaid debt.
Avoid letting your unpaid bills end up with a debt collection agency. If you fall into financial hardship, try and arrange a payment plan with the provider before a default occurs. If you’re really struggling, speak with a free Financial Counsellor — these are confidential services offered by not-for-profit organisations.
When you apply for a Gimmie Plan, we want to be sure that you’ll be okay making payments, and not putting yourself under financial stress. So, before you apply, we encourage you to use the repayment calculator on our website to estimate your commitments and budget for what you can afford.
As a Responsible Lender, we want you to enjoy our great service and get the big buys you love, without having to wait — but we also want to make sure you stay on track and continue to improve your credit score.
So, check out why Gimmie is how we buy now!
