December 2020 – Tippla Credit School

December 29, 2020December 29, 2020

5 Achievable Credit Score Goals for 2021

We’re all about setting realistic goals. We’ve compiled a list of achievable and actionable goals to help you improve your credit score and enter the New Year on the right footing.

2021 is just around the corner. We are so close to officially saying goodbye to 2020 and hello to a new year, which will hopefully be a lot better than this year (we’ve set a low bar, we know)!

One way we can make next year better than the last, regardless of COVID-19, is by getting on top of our credit score and working to improve our rating. Although it will take time and effort on your part, it’s actually a lot easier than you think!

But what if you’re not a goal setter? Or you find it hard to stick to goals? We’ve all been there. We get a surge of motivation and create these grand plans to change our life. Whether it’s actually going to the gym more, eating healthier, or cutting back on expenses – whatever it is, in the moment it feels totally achievable. But then reality sets in, we lose our motivation, and we find ourselves falling back into our bad habits.

Setting SMART goals

If this has been you, you’re definitely not alone. The goal is admirable, but it falls apart at the execution. So what’s going to be different this time around? We’re going to be SMART about it.

By SMART, we don’t just mean setting intelligent goals but setting goals that are clear and tangible. Specifically, SMART stands for:

Look at it like this – “getting rich” is not easy to achieve. “Having $500,000 on my savings account by the time I’m 50” sounds more tangible but still makes it hard to know what to do. A SMART goal would be something frequent and time-restricted such as “saving $1,000 each month”. This type of goal gives you a direction of what to do and an appropriate time frame you can work with.

Setting arbitrary goals such as “I want to go to the gym more” or “I want to eat less junk food”, whilst well-intentioned, are arbitrary goals. This makes them hard to commit to and you may struggle to feel a sense of achievement. The more specific your goals are, the easier it is to measure your success and to keep yourself motivated and accountable.

It’s also easier to break down your ultimate goal. In this case, your ultimate goal is to improve your credit score. But that doesn’t just happen on its own. So you can create multiple SMART goals that will help you reach your ultimate goal.

With this in mind, what are some SMART goals you can set that will help you improve your credit score?

Check your credit score on a regular basis

Let’s start off with an easily achievable goal – checking your credit score on a regular basis. On Tippla, your credit score updates on a quarterly basis. This means every three months your credit score might rise or fall. If you have opened new credit accounts during this period, then these will appear on your credit report, and any adverse or positive credit behaviour will be shown on your report and reflected in your rating.

As we highlighted in a recent article, checking your credit score frequently will help you see exactly what influences your score – both good and bad. If you see your credit scores drop, then you could take steps to rectify the situation in a swift manner, reducing the duration of the impact on your rating.

Look out for mistakes

Not only that but if you check your credit score, you’re more likely to catch any mistakes on your report early. 1 in 5 credit reports have some kind of mistake on them. Wrongly listed information could cost you valuable points. That’s why it’s important to check your information frequently to catch mistakes early on.

So how could you make this a SMART goal? Instead of just saying, “I’m going to look at my credit score whenever I remember”, you could instead clearly outline your goal. An example of this could be: throughout 2021, starting from the 1st of January, “I am going to check my credit score every quarter as my report updates”.

To make sure you stay on track, you can put alerts on your calendar, phone, or find some way to remind yourself of your goal (post-it notes throughout the house also work!). You’ll be able to measure your progress based on whether you have checked your credit score and report in March, June, September and December, as an example.

Implement a budget

If you’re like us, then you’ve probably tried to set a budget numerous times. Whilst you started off strong, once the motivation wore out, you strayed from your budget more and more until you were back to your bad habits (snacks are life).

Unfortunately, it’s often the little things that add up. Ask yourself, do you know what you spend your money on? You may be getting $80 worth of snacks every month without even noticing (we’re guilty of this!)

This is where a budget comes in handy, as it helps you dictate where your money should go instead of spending without thinking. Specifically, a budget can help you reach your financial goals, ensure you have enough money to pay your bills, keep track of your debt repayments, and help you save money for your future self.

What is a budget?

So, what is a budget? A budget is a plan for your finances that spans across a defined period of time such as weekly, monthly, or even yearly. Your budget takes into account your incoming and outgoing expenses.

Your incoming funds can range from your salary, interest from investments, money from your side hustle, or any other way that you make money. Your outgoing expenses is what you spend money on, which can be divided into three separate categories – fixed expenses, variable costs, and savings. Assets, liabilities, and a range of other things can also be included in your budget, depending on how detailed you want to get.

Making your budget SMART

How can you actually stick to your budget and make it into a SMART goal? Firstly, you need to have a defined goal for your budget. Do you want to save a certain amount of money, reduce your spending in one area, such as cutting back the number of coffees you buy each week, or build an emergency fund?

All of these are great reasons, and there’s plenty of other ones out there. Once you know why you are setting a budget and what you want to achieve, then it’s much easier to stick to. Remember your goal needs to be specific. So maybe your ultimate goal is to have an emergency fund of $1,000, then your SMART goal is to set aside $100 each week after paying off all your fixed expenses. This budget would then last for 10 weeks, and at the end, if you stick to it, you’ll have met your goal!

Limit your hard enquiries

When it comes to your credit report, there are two types of enquiries made – soft and hard. A soft enquiry does not impact your credit score and generally occurs when you check your own credit score or when a promotional credit offer is provided to you.

Hard enquiries, on the other hand, are done when you apply for some form of credit, such as a loan or credit card. Your chosen credit provider will take a look at your application and, in order to assess how risky of a borrower you are, will look at your credit score.

Therefore, a hard enquiry on your credit report indicates that you have recently applied for credit. They serve as a timeline to show when you’ve applied for credit and could stay on your report for two years. Typically, however, they only affect your credit score for one year.

If you have multiple hard enquiries on your credit report in quick succession, then a potential lender or credit provider might think you’re in a bad financial situation in desperate need for finance, regardless of whether this is the case. This could lead to them rejecting your application, as they might feel you’re too risky of a borrower. This is why it’s important to limit your hard enquiries.

Keep old accounts open

Another goal you could have for 2021 to help your credit score is keeping your credit accounts open, even if you’re not using them. This is because accounts that have been open for longer may have a higher weight because they showcase your credit behaviour over a more significant period of time.

It seems contradictory at first to keep too many open credit accounts. However, the age of an account can contribute positively to your credit score. Paying your credit bills of a specific account consistently showcases that you have been capable of dealing with this credit account for a long time already – a good indication for a future credit provider that you are likely to handle credit well.

Not only is this goal quite easy to achieve, but it could be beneficial for your credit score. This is a win-win situation for us!

Develop good credit habits

One goal that could be super beneficial for your credit score is to develop good credit habits. However, this isn’t a SMART goal, as it doesn’t meet the criteria. In order to maximise your success, let’s break this down a bit

Firstly, let’s go over what some good credit habits could be. There are so many things you could do that could be beneficial for your credit score, such as paying your bills on time, only taking on credit you can afford, budgeting, spacing out your credit applications and more.

So now we have a list of ideas, how can these be made into SMART goals? Perhaps instead of selecting “paying your bills on time”, your goal could be to know what all your outgoing fixed expenses are – such as rent, groceries, utilities, etc, and knowing exactly how much you need to cover these expenses.

Say your total fixed expenses total $600 a week, as an example, your SMART goal could be: when you get paid, make sure $600 is set aside each week to go towards these costs. Alternatively, you could set yourself a goal to automate all of your payments or change them all to direct debits, on top of ensuring you have enough money in your account each week.

Be SMART in 2021

There are a number of things you can do to start 2021 off on the right footing when it comes to your credit score. You could try and set SMART goals when it comes to your credit, such as creating a budget, checking your credit report every 3 months, keep old credit accounts open, and develop healthy credit habits.

All of these and more could be just what you need to make 2021 your year (surely it can’t be worse than 2020 – right?). So, what are you waiting for? Sign up to Tippla and take control of your financial situation!

December 23, 2020

Rejected for Finance? Here’s How You Can Use Your Credit Score To Help

If you’ve been rejected for a loan or denied credit, it could be because of your credit score.

Many Australians don’t realise just how important their credit scores are. While it may just be a number, your credit score can have far-reaching implications, especially if you are trying to apply for a loan. In fact, sometimes, the reason why you have been rejected for finance or denied credit is because of your credit score.

What is a credit score?

If you’re wondering how your credit score could have anything to do with your loan application, then it’s best if we start from the beginning. What is a credit score? Your credit score is a number ranging from 0 to 1,000 for your Experian and Illion credit score, or 0 to 1,200 for your Equifax credit score.

This number reflects your creditworthiness. It indicates to any credit providers or lenders how risky of a borrower you are. If you have a good credit score, then it shows that you’ve historically been good at managing your credit. If you have an average or below-average credit score, then it means you might be more of a risk to a lender.

In Australia, there are three credit reporting agencies – Equifax, Experian and Illion. Aussies have a unique credit score and credit report for each of these agencies. This means you actually have three credit scores and reports.

A common question we are asked here at Tippla – how is the credit score calculated? Each of the three agencies has their own formula for calculating your credit score. In fact, the specifics are a well-kept secret. But, most of them will use similar information such as your repayment history, credit accounts, credit enquiries, whether you have any defaults and bankruptcies, among other criteria.

How to check your credit score

If you’re not sure what your credit score is then never fear! You can check your credit score by signing up for Tippla. For no cost whatsoever you can see your credit score, check your credit report, and have access to numerous resources to help you fix your credit score.

On Tippla, you can see two out of three of your credit scores and credit reports from Equifax and Experian. Alternatively, you can reach out to all three of the credit bureaus and request your credit score – but if you want your report in less than 10 days, you’ll likely have to pay.

What is a good credit score in Australia?

We often get asked the question – what is a good credit score in Australia? A good credit score ranges across the three credit reporting agencies – Equifax, Experian and Illion. Here’s a breakdown of what is a good credit score in Australia:

Source: Equifax and Experian

Every time you apply for a loan, credit card, or even sign up with an electricity provider, the company you’re applying to will check your credit score. If you have a below-average credit score, then you might be declined for credit, or rejected for a loan, as you’re deemed too high of a risk.

Another consequence of having a below-average credit rating is that when you apply for a loan or credit you might have to pay higher interest rates and fees than if you had a good credit score. This is because the provider is deeming you as a risk, and is compensating that with higher fees and interest.

This is why we say your credit score is an important number – it is used much more than you might think!

I’ve been rejected for a loan: what’s next?

If you’ve been rejected for a loan, the first thing you should do is find out why. There could be numerous reasons why you were denied finance, and your credit score is one of them. However, other reasons as to why you were rejected for finance might be:

Insufficient income to make the repayments;
Information on your credit reports such as bankruptcy, poor repayment history or multiple credit applications in quick succession;
Your employment is not secure;
You already have multiple loans.

If you’ve been rejected for a loan, you should ask the lender if it was due to information on your credit report. If it is your credit report, then you can ask the lender which credit report they used.

Once you know which credit report has led to your loan being rejected, you can take a look at your report on Tippla. On our platform, you can see your credit report for both Equifax and Experian. You can use Tippla to find out what is on your report that has caused the lender to reject your finance.

Perhaps you’ve defaulted on your repayments in the past, and that is showing on your report, or perhaps you have multiple credit accounts and loans. Whatever it is, you’ll be able to see it on Tippla.

Check your credit report for mistakes

You might be surprised to hear that 1 in 5 credit reports have some kind of mistake on them. Oftentimes, this mistake can damage your credit score. In a worst-case scenario, a mistake on your credit report could lead to you being rejected for credit. This is why it’s so important to check your credit reports frequently, to make sure everything is correct.

Once you’re sure that everything is correct on your credit report, the next step you could take is improving your credit score.

Improve your credit score

Having a good credit score can be the difference between being approved or rejected for a loan. More than that, if you have a good credit score, then you might get access to better finance conditions.

As we mentioned earlier, a good credit score indicates to a lender that you are effective at managing your debt and are a low-risk borrower. This means that the lender doesn’t need to provide you with higher interest rates and fees to protect themselves if you should default. Of course, the lender will mostly always have some kind of interest rates and fees, but they could be much lower than if you had a below-average credit score.

This might seem like a no brainer, but interest rates can really make a huge difference in terms of how much money you’ll end up paying overall across the duration of your credit. Even a 0.5% difference in an interest rate can cost you thousands over the course of a year.

Take this as an example, the average home loan in Australia is $388,100. If you borrow that amount at 5% interest over 25 years, you’ll pay $292,539 in interest over the life of the loan. But if you borrow the same amount at 5.5% instead, you’ll pay an extra $34,344 in interest!

With this in mind, how can you improve your credit score? Tippla recently put together a guide on how you can fix your credit score. But here’s a quick breakdown on all the things you can do.

How to fix your credit score

There are numerous ways you can improve your credit score. It’s important to point out here that fixing your credit score can’t be done overnight. It will take time and consistent behaviour, but it definitely can be done!

Space out your credit applications

Every time you apply for credit – which includes any time you apply for a loan, the company you have applied to will check your credit report to see how risky of a borrower you are. This check registers as a hard enquiry on your credit report and can harm your credit score for a period of time.

The more applications you make, the more damage you’ll do to your credit rating. Additionally, lenders can see how many hard enquiries have been made, generally over the last two years. If a lender sees that you’ve recently made multiple applications, they might think you’re in a difficult financial position and desperately in need of cash. If they don’t want to take that risk, this could lead to them rejecting your application.

Make your repayments on time

Your credit score is based on how well you have managed your debt in the past. As part of this, your repayment history is an important factor when calculating your score. If you want to improve your credit score, then making sure you consistently make your credit and loan repayments could make a big difference.

Keep your credit accounts open

The age of your credit account can contribute positively to your credit score. The older the account, the better it is for your rating, as it demonstrates that you can consistently handle a line of credit.

Another way you can improve your credit score is by keeping your credit accounts open. Whilst we’re not advocating that you keep multiple credit accounts open just for the sake of it, you might want to consider keeping some open and in use so credit reporting agencies have data to base your credit score on.

What looks bad on a credit report

Whilst there are many things that can look good on your report, such as mature credit accounts, consistently positive repayment history and diversified credit, there are also things that can look bad on your credit report.

So what exactly might this be? Well, it could be anything that suggests that you haven’t effectively managed your debt. This could include too many credit applications, defaults, poor repayment history, bankruptcy and other serious credit infringements.

If you’re struggling with your debt, in Australia, you can contact a financial counsellor for advice on how to approve your situation. You can also reach out to the National Debt Hotline, which will help you with where to start.

Furthermore, credit providers are required to have hardship policies in place to help you if you are in a bad financial situation. If you are experiencing hardship, it could be worthwhile to reach out to your credit provider first and try to come to an agreement.

Use your credit score to get a loan

Your credit score can impact multiple areas of your life, including your ability to be approved for a loan. The better your credit score, the more likely you are to be approved for a loan. Not only that, but a good credit score could give you access to better loan terms and save you serious dollars in the long run.

If you want to take control of your credit score, sign up for Tippla here. Alternatively, if you want to learn more, check out Tippla’s Credit School – a free online short course which will guide you through the ins and outs of your credit score.

December 16, 2020

How To Improve Your Credit Score? A Quick Guide

We’ve said it time and again – your credit score is an important number. The higher your number, the better. A good credit score can open up many financial opportunities for you. So how can you improve your credit score? We’ve put together a quick guide to help you fix your credit score.

What is a perfect credit score?

We often get asked this question here at Tippla: what is a perfect credit score? When it comes to your score, which is also referred to as a credit rating, there’s no such thing as perfect. However, there is good – which is what everyone should be aiming for or higher.

In Australia, there are three credit reporting agencies – Equifax, Experian and Illion. Therefore, Aussies don’t have just one but three credit scores. It’s highly likely that your credit score will differ across the agencies, as they have different scoring methods and scales.

Broadly speaking, your credit score is a number ranging from 0 – 1,200. Depending on your rating, it falls somewhere on a five-point scale: excellent, very good, good, average and below average.

What is a good credit score for Australia? Here’s how Equifax and Experian rank credit scores.

When it comes to credit ratings, what is a bad credit score? We think it’s important to emphasise here that your credit score isn’t a reflection of you as a person, but an indicator of how you have managed your debt in the past. If your credit score is below average or average, then there is room for improvement. That’s why we’re here – to help you improve your credit rating through understanding and healthy financial habits!

How to improve your credit score

Now you know what a good credit score is, how can you improve your credit score so that yours is good or higher? Firstly, you need to know what goes onto your credit report and what matters when it comes to your credit rating.

Your credit score is the overall number which indicates how creditworthy you are to credit providers and lenders. Your credit report, on the other hand, contains all the information that your credit score is based on.

You have a credit report for each credit score you have. In Australia you have three credit ratings, therefore, you also have three credit reports. Just as your credit ratings vary across the different bureaus, so do your credit reports. Also, you might find that you have different information on each of your reports.

Just because your information varies across your reports, doesn’t mean the information is wrong. However, 1 out of 5 credit reports contain at least one mistake that can cause your number to drop. That’s why it’s important to check your information thoroughly and frequently.

So what exactly goes onto your credit report? Your credit report contains a mix of information about your previous financial behaviours. This includes:

Credit Accounts;
Repayment History;
Defaults;
Credit Applications;
Bankruptcies and Debt Agreements;
Credit Report Requests.

With this in mind, how can you increase your credit score? We’ve put together a number of things you can do to fix your credit score. Tippla also recently covered a number of credit score FAQs which you might find useful.

Space out your credit applications

When you apply for a loan, a credit card, or even sign up with a new electricity supplier, this is referred to as a credit application. If you’re successful in receiving whatever type of credit you have applied for, then your application has been approved.

A lot of people don’t know this, but if you make multiple applications in a short period of time, this can actually harm your credit score. Why? Well, when you apply for credit, your creditor will assess your application and how big the risk is that you may miss a repayment or won’t be able to pay back your loan at all. Your credit report is one of the elements used to assess if you are a high or low-risk candidate.

When a credit provider does this, it is called a hard enquiry. As outlined by Equifax, “Hard inquiries serve as a timeline of when you have applied for new credit and may stay on your credit report for two years, although they typically only affect your credit scores for one year.”

The tricky thing here is, it doesn’t matter what the reality of the situation is, multiple hard enquiries can look bad to potential lenders and credit providers. Whilst you might have made multiple applications for a loan because you were trying to find the best deal, to a lender, it could look like you were in a really bad financial situation and in desperate need of cash.

With this assumption at the forefront of their mind, they may be more likely to reject your application. To be safe, it’s better to know your options before you dive deep into the world of credit.

Shop around before making an application

How can you do this? You could use comparison sites to try and find the best deals or reach out to different credit providers to learn more about their offers before making an application. By shopping around and comparing your options beforehand, this means you may only need to make one credit application, instead of multiple. Above all, this can protect your credit score from falling too much.

If you’re reading this and feeling worried because in the past you have made multiple credit applications at once – never fear. Time can heal all credit wounds. Now that you have this piece of information, you can use it to improve your credit score going forward.

Make your repayments on time

Your credit score is a number which indicates to lenders how reliable of a borrower you are. If you have a good credit score, then that tells them that you aren’t a risky client and in the past, you’ve handled your debt well.

Paying your bills and making your credit repayments on time, therefore, could go a long way when it concerns your credit score. In fact, your repayments make up 30% of your Equifax credit score.

That means, if you lose track of your repayments and miss, or even default on one of your bills, this could be bad news for your score. Defaults can stay on your credit report for five years, which means any time you apply for credit during this period, the provider will be able to see that you defaulted in the past and that might lead to them rejecting your application.

So how can you pay your bills on time? There are a number of things you could do to ensure you don’t miss a repayment. For example, set up a budget to make sure you have enough money to cover all of your necessary expenses. You could also set up automatic payments or direct debits.

Check your credit report frequently

Another way you could improve your credit score is by frequently checking your credit reports for mistakes, as we mentioned above, or for credit card fraud. Your credit report outlines all of the credit accounts you currently have or have had in the past two years. If you see one on your report that doesn’t belong, then you might have been subject to credit card fraud.

Discovering this early could make a lot of difference, and it’s just one of the many ways you can use your credit report for good!

Not only is it a good idea to check your report frequently in case there are any mistakes on it, it could also be useful to be familiar with your report. The more you understand your credit report and what goes into it, the more likely you’ll notice changes on your report, and whether they are good or bad.

Over time, this could give you a deeper understanding of your credit report, helping you learn which of your behaviours adversely affect your score. You can use this knowledge to avoid this behaviour and boost your credit score.

Keep your credit accounts open

You might be surprised to learn that the age of your credit account can contribute positively to your credit score. The older the account, the better it is for your rating, as it demonstrates that you can consistently handle a line of credit.

If you can show that you have been able to effectively manage your current or previous credit accounts, then lenders and credit providers might be more inclined to provide you with finance.

How to improve your credit score: time and consistency

Tippla hint: Stay consistent! Consistency is key when it comes to your credit score. Unfortunately, there’s no quick fix to improve your credit score and it can’t be changed overnight. With that being said, it can be done. Sticking to the above suggestions could make all the difference – make your repayments on time, check your credit report often, space out your credit applications and more.

How long does it take to improve your credit score?

You can improve your credit score with time. But how much time are we talking about here? Well, there’s no set time limit for how long it will take. It completely depends on each individual situation and if there are any significant negative entries.

The good news is that even significant negative entries will age over time and get progressively less powerful. However, for most of them, it takes up to 7 years until they fully disappear.

Here’s what stays on your credit report and for how long:

Credit accounts – any open credit accounts and accounts that have been closed in the past two years
Credit enquiries – 5 years
Repayment history – for 2 years
Defaults – 5 years
Court judgements – 5 years
Bankruptcies – at least 5 years
Serious credit infringements – 7 years

To help you fix your credit score, here’s a helpful article Tippla put together outlining the dos and don’ts of credit.

What are the consequences of bad credit?

If you’ve taken a look at your credit score and it’s not quite what you’re hoping for, never fear! It is possible to improve your credit score. But if you’re wondering if it’s even worth the effort, here are some of the consequences of bad credit.

Credit applications might be rejected;
Potentially higher interest rates;
Insurance premiums could be more costly;
It might make starting a business more difficult;
Might cause obstacles to getting a phone contract.

Want to learn more?

If you’re hungry for more information and ready to embrace your inner finance geek, then head back to school! Learn what they didn’t teach you at school with Tippla’s Credit School – a free online short course which will guide you through the ins and outs of your credit score.

December 9, 2020December 10, 2020

The Dos and Don’ts of Credit

Taking out credit, whether it be a credit card, loan, or mobile phone, can have more implications than you may realise. Unfortunately, these effects aren’t commonly talked about, so you could be harming your credit score without even realising it.

Your credit score is an important number, and it’s one of the benchmarks used to determine your financial health. Taking out credit can be good for your credit score, but it can also have a negative impact. It all depends on how you go about it.

Taking on too much credit or applying for multiple types of credit in quick succession could harm your credit score, which can cost you more in the long run. In order to help you avoid this, we’ve put together the dos and don’t of credit.

What is credit?

Before we dive in, let’s go over one important bit of information – what is credit? As defined by MoneySmart, “Credit is money you borrow from a bank or financial institution. The amount you borrow is debt. You will need to pay back your debt, usually with interest and fees on top.”

Examples of credit include:

Credit card;
Loans – personal (secured and unsecured), car, mortgage, business, student and more;
Buy Now Pay Later services;
Mobile phone;
Internet;
Electricity or gas;
Water.

Your credit score, or credit rating, is a number ranging from 0 – 1,200. The role of a credit score is to indicate to credit providers your creditworthiness, which essentially means how risky of a borrower you are.

A good credit score indicates that you are effective at managing your debt and likely won’t default on your credit. A bad credit score shows that providing you with credit will be more of a risk to the provider. The better your credit score, the more likely you will be approved for credit.

Dos

Taking out credit can be beneficial for your credit score. In fact, you need to have taken out some form of credit in order to have a credit score. So how can you use credit for good?

Make your repayments on time

Your repayment history is one of the ingredients which contributes to your credit score. According to Equifax, your repayment history makes up 30% of your credit score – the second-biggest contribution behind only credit enquiries.

Because of this, whether you make your repayments on time could make a big difference to your credit score. So how can you make this work in your favour? Well, you could ensure that you always make your repayments on time.

There are a number of ways to do this, such as streamlining all your repayments to come out at once, setting up direct debit repayments or adding notifications on your phone.

Make more than the minimum repayments

Did you know that if you only pay the minimum amount due on your credit card that carries interest, you’ll actually end up paying more money in the long term? It’s true!

When you take out a credit card, you’ll need to make a minimum payment each month, which is usually about 2 or 3% of the total amount you owe for the month.

However, when you only pay back the minimum amount, depending on how much you owe, you could end up having to pay back the outstanding balance for years. This means you could be stuck with credit card debt for years, even when you’re not using it anymore!

Think of it like this: your credit card charges you 10% interest per year and you spend $1,000 on your credit card in one month. Your minimum repayment is 2%, meaning you would have to pay a minimum of $20. This means that there’s still $980 that will be charged the interest rate, which will cost you an extra $98.

The next month, the interest you’ve been charged will be added onto your outstanding balance, and then you’ll have to pay interest on the new amount. Add on the fact that you’ll probably spend more in the next month, you can see how your credit card debt can quickly get out of hand!

Keep your line of credit open even when you’re not using it

Keeping your line of credit open, even when you’re not using it, might sound contradictory at first, but it could help boost your credit score. Why is this you may ask? The age of a credit account can contribute positively to your credit score.

Paying your credit bills from a specific account consistently showcases that you have been capable of dealing with this credit account for a long time. This serves as a good indication for a future credit provider that you are likely to handle credit well.

Whilst we’re not advocating that you keep multiple credit accounts open just for the sake of it, you might want to consider keeping some open and in use so credit reporting agencies have data to base your credit score on. You don’t have to go into debt to contribute to your credit history. Instead, you could make smaller purchases with your credit card and fully pay off your debt whenever needed.

In addition to keeping your line of credit open, having different types of credit can also be beneficial for your score. This is because it shows providers that you’re able to handle multiple credit accounts perfectly fine. At the end of the day, that’s what credit providers care about – that you can manage your debt well, and you’ll make your repayments on time.

Find the best interest rates

Because of this, you might want to aim for credit with the lowest interest rates and fees when you apply for credit. If you’re not sure what’s the best option, you can seek the advice of a financial advisor, who can help you make the best decision for you.

Frequently check your credit score

Your credit score changes frequently. Credit providers report to credit bureaus once a month, but not necessarily at the same time. This means your score can change frequently.

If you check your credit score often you can see exactly what influences your score – both good and bad – and take steps to rectify the situation if something you have done has negatively impacted your score.

If you check your credit score, you’re more likely to catch any mistakes on your report early. 1 in 5 credit reports have some kind of mistake on them. Wrongly listed information could cost you valuable points. That’s why it’s important to check your information frequently to catch mistakes early on.

Don’t

We’ve given you a number of things you could do to protect or even boost your credit score, but what are some things you might want to avoid?

Make multiple credit enquiries in a short space of time

When you apply for some type of credit, such as a loan or credit card, before approving your application, the provider will take a look at your credit report to see how risky of a borrower you are. This request is recorded on your credit report as a hard enquiry and it will usually impact your credit score.

As outlined by Equifax, “Hard inquiries serve as a timeline of when you have applied for new credit and may stay on your credit report for two years, although they typically only affect your credit scores for one year.”

Hard enquiries on your credit report can symbolise different things to different lenders. For example, multiple hard enquiries might look like a number of financial institutions have rejected you. Therefore, they themselves may be more likely to reject your application. To be safe, know your options before you dive deep into the world of credit.

On the other side of the coin are soft enquiries. A soft enquiry is when you request a copy of your credit report or check your credit score. Soft enquiries don’t harm your credit score, and they’re not visible to potential lenders when they check your report after you make a credit application. A soft enquiry will stay on your credit report from 12 to 24 months.

Take on unnecessary credit

Your credit score is based on how effectively you can manage debt. One way to harm your credit score is to let your debt get out of your control. Therefore, one thing you could do to avoid harming your rating is to avoid taking out unnecessary credit.

If you’re taking out a loan to pay for something that you don’t necessarily need or you can’t really afford, then you might be living above your means. Before taking on credit, you should ask yourself if this is something you both need and can afford.

In a similar vein, maxing out your credit accounts can hurt your credit score. Just because you have an allocated credit limit, doesn’t mean you should use all of it. Using your full borrowing capacity may affect your credit score and indicate to credit providers that you may be at a higher risk to struggle financially in the future.

Lose track of your repayments

Repayments make up 30% of your Equifax credit score. That means, if you lose track of your repayments and miss, or even default on one of your bills, this could be bad news for your score.

Defaults can stay on your credit report for 5 years, which means any time you apply for credit, the provider will be able to see that you defaulted in the past and that might lead to them rejecting your application.

Prioritise long-term loans

If you’re looking for a loan, it can seem like a smart idea to take out a longer-term loan with a lower interest rate and an overall lower monthly repayment. However, this isn’t always the cheaper option.

Even if you end up paying less each month, because you’re having to make your repayments for longer, you might end up paying more overall. Ultimately, taking on a longer-term loan means that you are committed to making your monthly repayments for more time. If your financial situation was to change throughout the duration of the loan, this could make it difficult to make the repayments.

When taking out any form of credit, it’s important to do your research and calculate the total costs you’ll incur across the duration of the line of credit and not just the monthly repayments. If you’re ever in doubt, you can reach out to a financial adviser who can help you navigate your finances.

Want to know more?

There’s a lot of mystery when it comes to credit scores and the nitty-gritty details can be confusing. However, following the above dos and don’ts could help you get started on improving, maintaining or even building your credit score!

If you want to learn more, Tippla has you covered! Our Credit School is a free online resource which will guide you through all of the information you need to know about your credit scores and reports. So what are you waiting for? Let’s get credit-score savvy!

December 2, 2020

Credit Score FAQs: You Asked, We Answered

There is a lot of uncertainty surrounding credit scores, so we’re shining the light on the situation and answering some of your most frequently asked questions.

Your credit score is an important number that can affect multiple aspects of your life. However, 73% of Australians don’t know their credit scores or why they are important. Because of this, there’s a lot of mystery and uncertainty surrounding credit scores.

It’s time to pull back the curtain and shed some light on credit scores. What is a credit score? What’s the difference between your credit score and credit report? How can you improve your credit rating? All of this and more will be tackled in this article.

What is a credit score?

Let’s start off with the most frequently asked question – what is a credit score? Your credit score, which can also be referred to as a credit rating, is a number ranging from 0 – 1,200.

The role of a credit score is to indicate to credit providers, such as banks, finance companies and utility providers, your creditworthiness. In other words, it reveals how risky of a borrower you are. Your credit score is based on a five-point scale: excellent, very good, good, average and below average.

A good credit score indicates that you are effective at managing your debt and likely won’t default on your credit. A bad credit score shows that providing you with credit will be more of a risk to the provider. So, the better your credit score, the more likely you will be approved for credit.

One thing that’s important to highlight is that you actually have more than one credit score. In Australia there are 3 different credit reporting agencies – Equifax, Experian and CheckYourCredit (illion). Each of these have a separate credit score for you.

So, to answer the question, a credit score is a numerical representation of your creditworthiness. Your credit score is likely to change across your lifetime, so it’s important to know what your credit score is and why they change.

You’ve probably heard the saying knowledge is power. When it comes to your credit score this couldn’t be more true! When you know what your credit score is, and how to improve it, it could help you to negotiate better deals with your existing credit facilities, or when you’re applying for new credit. This brings us to the next commonly asked question…

What affects your credit score?

Now you know what your credit score is, the next question that follows is, what affects your credit score? Your credit score is based on the information on your credit report. What’s your credit report? We’ll answer that in a moment!

Your credit rating is influenced by a number of factors. These include your previous repayment history, how many credit accounts you have or have had in the past, and how often you apply for credit.

It’s important to address here that when we say credit, we’re not just talking about a loan or a credit card. As defined by MoneySmart: “Credit is money you borrow from a bank or financial institution. The amount you borrow is debt. You will need to pay back your debt, usually with interest and fees on top.”

Examples of credit include:

Credit card;
Loans – personal (secured and unsecured), car, mortgage, business, student and more;
Buy Now Pay Later services;
Mobile phone;
Internet;
Electricity or gas;
Water.

Previously, your credit scores were only based on so-called negative reporting. This meant that if you missed a payment, it would be reported to the credit bureaus and a negative entry would appear on your report.

Whilst this is still true – if you default on a payment it could be reflected on your credit report and your score could be negatively affected. However, from 2018, Australia uses the Comprehensive Credit Reporting (CCR) which now includes positive behaviour being reported to your account for rental agencies and utility providers. While not all rental agencies and utility providers report to credit bureaus just yet, this is looking to be more of a trend in the future.

What is a good credit score?

Having a good credit score could open a world of opportunities. Generally speaking, when you have a good credit score or higher, you could have access to better credit terms such as lower interest rates and fees.

For example, the average home loan in Australia is $388,100. If you borrow that amount at 5% interest over 25 years, you’ll pay $292,539 in interest over the life of the loan. But if you borrow the same amount at 5.5% instead, you’ll pay an extra $34,344 in interest! The extra half per cent interest doesn’t sound like much, but it has a massive impact.

So what is a good credit score? Well, it varies across the different credit reporting agencies. For Experian, a good credit score starts at 625. Technically, a good credit score is from 625 – 699, anything higher than this is either a very good or excellent credit score. When we refer to a “good” credit score, we’re referring to a score that’s either good or better.

For Equifax, a good credit score starts at 622. You can see an exact breakdown of the different credit scores below. We also did a dedicated article to what is a good credit score, which you can check out here.

Source: Equifax and Experian

What is the difference between a credit score and credit report?

Your credit score is a number which can range from 1 digit to 4, depending on where you fit on the five-point scale. Your credit report, however, contains detailed information on your credit history.

Your credit history includes any interaction you’ve had with credit before, whether you’ve taken out a loan, have a credit card, or rent a place and have to pay for your electricity.

What goes on your credit report?

The specific information that’s included in your report includes your repayment history, which type of accounts you have or have had in the past, how many applications you’ve made for credit, whether you’ve defaulted on a payment and more.

Your credit report contains a mix of information about your previous financial behaviour. This includes:

Credit Accounts;
Repayment History;
Defaults;
Credit Applications;
Bankruptcies and Debt Agreements;
Credit Report Requests.

Each credit bureau uses a slightly different algorithm to base your credit score off. For a full breakdown on what exactly goes into your Equifax and Experian credit reports, head back to school with Tippla’s Credit School – a short online course which will guide you through all the information you need to know about your credit scores, including what exactly goes into your credit report!

What goes on your credit report and how long does it stay there? Here’s an overview:

Credit accounts – any open credit accounts and accounts that have been closed in the past two years
Credit enquiries – 5 years
Repayment history – for 2 years
Defaults – 5 years
Court judgements – 5 years
Bankruptcies – at least 5 years
Serious credit infringements – 7 years

How can you improve your credit score?

So now you know what a credit score is, and what goes onto your credit report, how can you use this knowledge to improve your credit score?

Fixing your credit score can’t be done overnight – but it definitely can be done! Time and consistent positive behaviour could help you boost your credit score and get access to the VIP credit offers.

Before you can fix or improve your credit score, you need to know where you’re at so you know what you’re working with. The next step would be to understand your credit score and report and know what affects your score. Luckily for you, you’ve already completed this step!

Now that you know your credit score and what influences your number, you could do the following things to improve your score.

Pay off your current credit debts

Effectively managing your debt is the key to a good credit score. If you’re behind on your payments, one way to improve your credit score could be to get on top of and stay up to date with your debt. Once you’ve achieved this, staying on top of your debt could help maintain any ground that you’ve gained!

Reduce your debts

If you are struggling with managing your debts, you could look at trying to reduce your debts. There are two main methods – the snowball system and the avalanche system. The snowball method is when you organise your debts from largest to smallest amount, and focus on paying more towards the smallest debt whilst still making the minimum payments towards your other obligations.

The avalanche method is when you organise your debts by interest rates and put more resources towards paying off your debts with the highest interest rates first. The avalanche method might take you longer, but it could help you save more money in the long run.

Another way to reduce your debts could be debt consolidation. If you have accumulated debt from multiple sources, you may be able to consolidate them into one loan. This may save you money as you only pay interest on one loan and could make it easier to manage your repayments. Instead of remembering multiple dates, you only need to keep track of one.

Pay your bills on time

Similar to the above, paying your bills on time could help you improve your credit score. If you can consistently show that you’re able to pay your bills on time, it indicates that you’re responsible with your finances – which is what credit providers care about! There are a number of ways you could make this easier for yourself. Some examples include setting up a budget, streamlining your payments so they all come out at the same time, setting yourself reminders, setting up a direct debit for your bills and more!

Find the best interest rates

Interest rates can make a big difference when it comes to how much money you will have to pay over the duration of your credit. As we highlighted before, even a 0.5% difference in an interest rate can cost you thousands over the course of a year.

Because of this, when applying for credit, you might want to aim for credit with the lowest interest rates and fees. If you’re not sure what’s the best option for you, you can seek the advice of a financial advisor, who can help you make the best decision for you!

Diversify your credit

Having more than one type of credit shows to credit providers that you are capable of handling multiple credit accounts perfectly fine. Repaying your debt on time might not only improve your credit score but signal to credit providers that you are good at managing your finances.

Space out your credit applications

When you apply for credit, your creditor will assess your application and how big the risk is that you may miss a repayment or won’t be able to pay back your loan at all. Your credit report is one of the elements used to assess if you are a high or low-risk candidate.

When a credit provider does this, it is called a hard enquiry. Too many hard enquiries in close succession could damage your credit score as it implies that you’re in a bad financial situation and in need of extra money.

To avoid this, it could work out better to space out your credit applications over a few months and let your score recover in between. This could help you get better interest rates and protect your credit score in the long run.

Check your report for mistakes

Last but not least, one way you could improve your credit score is by frequently checking your credit reports for mistakes. 1 in 5 credit reports have some kind of error on them, which could damage your rating. So it’s best to keep an eye on your reports and check to make sure you’re rating isn’t damaged because of a mistake!

Don’t have a credit score? No problem! We’ve already put together a guide on how to build your credit score from scratch.

What do credit providers see when they look at your credit report?

What you see on your credit report and what providers see when they check your report are two different things. So what can creditors see when they look at your report? For example, when you request to see your credit report, for security reasons only you can see who has accessed your report and when. Potential lenders and credit providers can’t see this when they make a hard enquiry on your report.

Aside from that, creditors can see your personal information, repayment history, your current credit accounts and more.

What are the consequences of bad credit?

Credit applications might be rejected;
Potentially higher interest rates;
Insurance premiums could be more costly;
It might make starting a business more difficult;
Might cause obstacles to getting a phone contract.