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Do you have a pass mark on your credit score? Making on-time payments helps put you in the top performance band, while a below-average score could stop you getting a loan. So, how can you be top of the class for credit health?
As a teacher, you know all about report cards and pass marks. But there’s another score outside school that’s important, and that’s your credit score.
If you’ve ever applied for a loan or a credit card, even in-store credit, you’ll have a credit report and a credit score with a credit reporting agency such as Experian, Equifax and illion.
Your credit report has important information about your credit card and loan history over the past two years. It shows your track record when it comes to repayments, good and bad. It shows your payment history with utility and phone bills. It also shows all your applications for credit. And if you defaulted on a repayment or paid a bill over $150 more than 60 days late, that’s on your record for five years.
Your credit score is based on everything in the credit report. Depending on the credit-reporting agency, it’s a number between 0 and 1,000 or 0 and 1,200, (a typical credit score is between 625 and 699).
Put simply, a credit score lets lenders know how risky you are to loan to. The higher your score, the more confident they’ll be that you’ll repay the loan.
Having a bad credit score makes it harder to be approved for loans and credit when you need it. If you find a lender, you may have to pay a higher interest rate until the lender is satisfied you’re reliable. Any credit card you get may have a lower limit.
To see how you’re rating, you can get a free copy of your credit report once every three months from each agency: Experian, Equifax and illion, or just check your credit score with them.
So, what does it take to be a top scorer?
1. It’s your payment behaviour, not your savings, that matter
Your credit record is only concerned with how reliable you are with bills, and loan and credit card repayments. It doesn’t have any record of your income, savings, or assets.
You’ll build a good credit score by paying your bills, rent or mortgage, loan instalments and minimum credit card repayments on time.
You can be a champion of on-time payments by setting up direct debits, automatic transfers, or popping in calendar reminders two days before the payment is due.
If you’re short of funds, rather than paying late, contact the provider to get a payment extension. That way you avoid both the late payment record and late fees.
2. Don’t overdo your credit applications
Each time you apply for credit or a loan, the credit provider will request to look at your credit report. Those requests stay on your credit record for five years.
If there are a lot of enquiries about your credit report in a short period, that’s a red flag to lenders that you could be in financial stress. Applications to payday lenders are another red flag, as is seeking balance transfers on a credit card too often.
That’s why you should only make credit applications if you plan to use them.
3. Ditch extra credit you don’t use
Holding a big stash of credit cards, store credit and Buy Now Pay Later accounts also pushes down your credit score.
Even if you have little or no debt on each account, a lender will look at the cumulative debt you could be liable for if you maxed out on everything. That makes you a riskier loan candidate.
So, if you’re not using all that credit, ditch extra accounts and lower your credit limits.
4. Follow these steps to repair a bad credit score
Checking your credit report at least once a year from Experian, Equifax and illion can alert you to any potential problems. You can also get any mistakes corrected for free.
If you find your credit score is below average, you can take steps to start getting it back where it should be, but it will take a little time.
You can:
- consolidate high-interest debts (your credit cards, etc) into one lower-interest loan
- pay down debt and lower your credit card limit as you go
- pay using your own money with a debit card rather than using a credit card
- make bill and loan repayments on time.
5. Take control of your budget
Setting out a budget is a potent and practical way to make yourself more credit healthy. There’s a lot of advice online on how to make your personal budget, including on the government’s Moneysmart website. There’s a free budget planner tool you can use on the Teachers Mutual Bank website. You’ll also find some practical tips on how to trim your spending.
If you’re really struggling with your finances, then contact a free financial counselling service. There’s a useful list on the Moneysmart website.
This information is general in nature and does not take your personal objectives, financial circumstances or needs into account. Consider its appropriateness to these factors before acting on it. Membership eligibility applies to join Teachers Mutual Bank. Membership is open to citizens or permanent residents of Australia who are current or retired employees in the Australian education sector or are family members of members (i.e. shareholders) of the Bank. Teachers Mutual Bank is a division of Teachers Mutual Bank Limited ABN 30 087 650 459 AFSL/Australian Credit Licence 238981.
The higher your credit score, the more confident lenders are that you’ll repay a loan.
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