I’ve just been through the home loan application process.
We won’t go into the boring details about how to go about that. But one thing you need to know, even if you’re not ready for a loan just yet, is that your credit score is super important.
That’s basically your report card on how good you are with money. I know. It feels … invasive.
Still, before you’ll get approved for any big loan, the banks or lenders are gonna check on you. Kinda like Santa Claus, but instead of new toys you get to be beholden to them for decades.
Aside from home loans, you never know when you might need something approved that involves your credit score, so it’s best to keep it nice and squeaky clean from the get go. Stuff up, and it’ll stay on your record for years.
Don’t worry. When we say stuff up, you’ll need to properly stuff up for it to matter.
You might not even know that since 2014 we’ve had a credit score system, much like the US. But ours works a little bit differently, and that’s really important. So let’s bust some credit score myths … and solidify some truths.
How do I know what’s on my report?
There are a couple of major credit-reporting agencies. Different banks use different providers. Two major ones are Dun & Bradstreet and Equifax (formerly Veda). You can get your report for free from either of these places every 12 months—don’t get suckered into paying for it. There is no centralised reporting structure though, so your report may differ from one to the other.
Does having a high credit limit show the banks I’m a good bet?
Nah. Unlike in the US, holding onto credit cards is seen as a liability. The US model encourages you to keep credit cards, charge them, and measures your diligence in paying them back. If you’re good at repayments, it helps your credit score. There, you have to earn good credit. Here, you’re good till you do something bad. Having no credit cards = good.
If you have a $10,000 limit on your CC, that’s seen as a $10,000 debt. Even if you never use it. Even if there’s nothing charged to it. There’s no reason to keep multiple cards, and definitely no (credit score related) reason to have a high limit.
I heard that checking your credit score gives you a black mark.
This isn’t true. In fact, you can get your report for free to check once every 12 months, as explained before. If you’ve been declined for a loan, you can also check your score for free.
Is applying for credit is seen as negative?
Don’t ask us why, but if you’re seen as a ‘credit shopper’, the banks get sus. I know—you just want the best deal! Avoid looking like a credit shopper by doing your research first (comparison sites like Finder or Mozo are helpful). Once you decide on a provider, then fill out the application form.
I paid my electricity bill 3 days late and it’s going to affect my credit!
Not true. Late utility payments aren’t recorded on your credit report, unless it’s over 90 days past due, and/or referred to a debt collection agency. Don’t think that means go crazy with the late payments (that’s a no-no for other reasons!)
I paid my credit card 3 days late and is going to affect my credit!
Not entirely true, but not totally wrong. Slightly late utility bills are one thing, but bank stuff is different. Banks are going to start sharing more customer information for credit reports in July 2018. That’s important: if you’re consistently late on your CC or loan repayments, it might affect you. Overall though, the expectation is that most credit scores will get a bump when this happens.
I applied for a credit card and I was declined. Is this bad?
It’s not great. If you request a loan, or a credit card, and are denied, this is recorded on your credit report. Some lenders might not like it, but others might be more lenient.
What’s a default?
If you don’t pay a bill or debt, it’s called a default. If it’s been a certain amount of time, or for a certain amount of money, it might get listed on your report. The unpaid debt needs to be at least 60 days overdue to be listed, and be for more than $150. If you find a default that doesn’t match these conditions, you can request for it to be removed. What’s more: you have to be warned, twice, in writing before something is listed on your report. So you should have plenty of time to rustle up the cash and get that bill paid.
My score is shot. Should I engage a debt repair agency?
N-O, NO, no no no. Often these debt repair agencies charge you a ton of money for services you can get for free—and if you’re in a lot of debt, that’s money you really need! Instead, get free financial counselling at the National Debt Hotline.