SEPTEMBER 30, 2019
What are credit scores?
Understanding credit scores should not require a PhD in macroeconomic policy. But having a strong understanding of how they are formulated and how it could affect you in the future may help you in buying your first or next home. So, in a nutshell, what are credit scores?
None! Pick a term and stick to it. A credit score (generally between 0-1,000) provides lenders (i.e. banks) with an indication of how well you will be able to pay off the terms of any credit they provide to you. Above 800? That means you score as ‘excellent’. 600-800 is ‘good’, followed by average and below average.
Only just treading water in a rip current of debt? Consistently been late in your repayments of bills and credit card repayments? These sorts of indicators tell the bank that you may be cause for concern when lending money, and your credit score is a numerical representation of this.
The Office of the Australian Information Commissioner (turns out that is a thing) lists three credit reporting bodies that you can contact for your credit score:
It is incredibly easy to do and you have the right to request your credit score from one of these bodies at least once a year, if you have been refused credit within 90 days, or if your personal information has changed.
There is a range of factors that can result in you receiving a low credit score.
As mentioned before, the most obvious culprits are:
These are the two that most people think of when they look at a bad credit score, but there are a few less-obvious factors:
Having a negative credit score can be an indication of larger financial stresses that you are under. Anybody can find themselves in financial trouble, and there are resources you can access to help you manage your debt and get on top of your finances.
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