How your credit rating affects your financial standing
Many people don’t realise the importance of having a good credit score until they try to buy a property, apply for a credit card, take out a personal loan or purchase anything that is financed. Many of us are dependent on credit for a variety of reasons, and your credit rating isn’t just about getting a credit card or a loan - it’s all about how it affects your financial decisions in life.
What is a credit score?
In Australia, credit scores are numerical within the band of 0 to 1,000 or 0 to 1,200 depending on the credit reporting agency. Commonly the scores fit within bands of excellent, very good, good, average and below average. If a credit report gives scores out of 1,200, as a general rule of thumb a score above 650 is good while anything above 830 is excellent. If a credit report gives scores out of 1,000 then a score above 540 is good and a score above 690 is excellent*.
Your credit score is a vital part of understanding your credit health. For banks and prime lenders, the higher your score, the more likely your finance application will be approved. The lower the score, the more likely your application will be declined.
So why should you care about your credit score? Because it affects your financial standing - here’s how:
Employment
Before you even think about getting a credit card or a loan, you generally need to be employed. But did you know that many employers conduct credit checks as part of the recruitment process? Usually this is your credit report that they check, not your credit score itself. This is because if the report shows that you don’t handle your finances responsibly, your potential new employer may decide to offer that job to someone else.
Utilities
You may not be aware of it, but energy companies reserve the right to check the credit rating of a prospective customer when setting up a new account for electricity or gas supplies. If you have a poor credit history, you may not get the best deal a provider has on offer, or in some cases, they may require a deposit from you. Basically, it’s their insurance just in case you fail to pay your utility bill.
The same can happen with many mobile phone network providers, who may encourage you towards a prepaid plan rather than a monthly account, if you can’t show a good credit history.
Buying a house
Buying a house is one of life’s major decisions, and it’s also one that’s impacted by your credit rating and your ability to meet the repayment requirements. Naturally, any lender is going to want to make sure they are comfortable with the risk of lending money and that you won’t default on your mortgage.
Ironically, if you’re approved for a mortgage, but your credit rating is a bit on the ordinary side, you’ll probably end up paying a higher interest rate which means your repayments will be higher. Overall, the better your credit rating is, the higher the likelihood of getting your mortgage approved without additional conditions.
Renting a house
Even if you’re not planning to buy a house yet, your rental options may be affected if you have a bad credit rating. Typically, landlords gauge your ability to pay your monthly rent on time by checking the TICA tenant database for your rental history or by obtaining your credit report or checking your credit score. It can be challenging to put a new roof over your head if you haven’t managed your finances well in the past.
Applying for loans
Ideally, you need your credit rating to be in good standing if you’re applying for a loan, but that's not the only element lenders consider, as some may choose not to do a credit check. Often, there are a number of other factors involved in the loan application / decision process that may impact an approval. For one, if you keep applying for loans from multiple banks or lenders, it’s recorded in your credit report. Some lenders view this as a negative indication of your financial standing, leading to rejection.
To avoid this, do your research first and choose the best lender before submitting an application. Here at Safe Financial we try to help everyone - that's why we assess every application as a whole - not just on your credit score. So, you're welcome to apply here even if you have some bad credit.
How do I make a positive impact on my credit rating?
If your credit rating isn't good, follow these steps to fix it:
- Lower the credit limit on your credit card
- Pay your credit card on time each month - ideally pay in full or pay more than the minimum repayment
- Limit the number of credit applications you make
- Pay your rent or mortgage on time
- Pay your utility bills on time
As you make these changes, they'll be noted on your credit report and you'll see your credit score start to improve.
The bottom line
To live comfortably, it’s important to have a decent financial standing, and that goes hand-in-glove with an equally good credit rating as it can affect multiple aspects of your life. Your credit rating may also affect your ability to obtain a loan whenever the situation arises. If you’re in that situation right now where you could use some extra funds, just remember that at Safe Financial we consider applications from people with both good and not so good credit scores - and we’re here to help.
Just take a look at our cash loans from $1,000 to find out how quick and easy it is to get your hands on some extra funds. Once a loan is approved, the cash is usually in your bank account within a few hours – so you can maintain a good credit rating and financial standing.
*In Australia, the three main credit reporting bodies are: Equifax, Illion and Experian. Each credit reporting agency will have their own criteria for calculating your credit score.