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Credit Rating

Credit Rating – What is it and why is it so important?

A consumer credit rating – sometimes called a consumer credit report – is a rating that lenders and credit providers use to determine if they want to provide credit or lend money to you.

It is a rating that tells them how trustworthy and responsible you are when it comes to money.

But of course, as we all know, sometimes our past is not our future.

In the past, you may have been irresponsible with paying your bills – because, let’s face it, spending money on the nice things in life can be much more appealing than paying multinationals or bill providers. Especially when you’re young, bills can easily fall to the bottom of the list of where you want your money to go.

That is, until you want to get your first or next home and, all of a sudden, a bad credit rating forces the lender says no thank you to your loan application.

Even if you feel that your credit rating is not reflective of your current financial situation, it is the tool that lenders use to assess you. And, as I always say, “knowledge is power”.

So here is my All You Need To Know about your credit rating.

Having a good credit score can and does give you the ability to negotiate a better deal when it comes to getting credit, but equally, it can be the very reason that a lender rejects your application when you seem on paper to be a good applicant.

Who has your credit report and how can you find out your rating?

Credit reporting agencies create and keep hold of your credit report. They use all of the information they have gathered to give you a credit score.

Most credit reporting agencies will allow you to have access to your report free of charge every three months. The following agencies may hold different information about you, so you may need to request a copy from each:

1) Equifax

2) Experian

3) Illion

Your credit score, depending on the agency, will be somewhere between zero and 1000 or 1200. The higher the score the less of a risk you are considered to the lender or credit provider.

When you make an inquiry on your credit file it is not recorded, but when someone else does it will be recorded and is there for any future reviews. Of course, no one can access your file without your permission, but you give this authority whenever you apply for a loan or a credit application – including Buy Now Pay Later.

Best practice is to request a copy of your credit rating once each year, as part of your annual financial check. This will show you who has looked at your file (which of course, if you haven’t approved it, could mean that your personal details have been stolen).

What information is included in my credit report?

As well as your credit score, it will contain information that identifies you, such as your name, gender, date of birth, address (both current and past), driver’s license number and employer.

It will also contain, for each credit product you have held or applied for in the last 2 years, the following information:

– Type of product you have applied (e.g. credit card, home loan or personal loan)

– Who the credit provider was

– How much you have applied for

– Dates you opened and closed the accounts

– Other people who you have applied with

In addition, it will contain information on each of the loans or credit facilities including:

– The repayment amounts

– When payments were due

– How often you paid and if payment was made on time

– Missed payment details

Your credit report will also include any defaults on loans, credit cards or utility bills as well as any financial hardship applications, bankruptcy or debt arrangements. Just as important, it will show all credit applications you have made – whether or not those applications have progressed to a loan. A reminder – most Buy Now Pay Later purchases will also result in a credit file application.

How can you fix your credit rating?

When you get your report, it is important that you check your personal details are correct and that all loans and debts listed are in fact yours.

If something is incorrect, you should contact the lender or agency and request that they correct the information. If you have paid an outstanding debt but the provider hasn’t removed that debt from your report, call them and ask for it to be removed.

A word of warning about businesses who claim they can fix your report for you. And there are plenty of these around!

Approach with caution. These companies may charge a lot of money to fix small things that you could have fixed yourself for free – and they cannot remove factual information on your past poor financial behavior.

So, what can you fix or have removed?

A credit provider may have incorrectly reported information, and this can be removed. This information may:

– be an unpaid account that you were not notified of

– wrongly list a debt of $150 or more that is more than 60 days overdue

– list a debt that you are disputing; or

– be an account that was created by mistake or is part of identity theft.

If this is the case, you can ask the credit provider who reported this information to remove it from your credit file.

What you can’t change or remove?

You cannot request information to be changed or removed if it is correct, even if it is having an impact on you financially.

This includes:

– The reporting of any payments of $150 or more that are more than 60 days overdue

– All applications for credit cards, home loans, personal loans, business loans and store cards

– All payments made to credit cards, loans or bills in the last 2 years regardless of whether payment has been made on time or not.

So how can you improve your credit score?

1) Limit the number of loan and credit applications you make. Only make them when you are serious about taking out the loan or credit facility

2) Reduce your credit card limits

3) Pay your account on time every time

4) Pay your credit card in full each month

If you do this, your credit score will improve over time.

And remember, if you are having difficulty paying your bills or loan repayments, get in touch with your provider early so that you can make arrangements with them. Ignoring the issue will mean that they will report you to these credit reporting agencies, which can have unforeseen long-term impacts.

Download our handy Credit Rating Checklist for a quick step-by-step guide to a healthy credit rating.