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New Year, New Credit Score: Take Control of Your Credit

The new year is upon us. It’s time to embrace the #newyearnewme motto and take control of your credit score and boost your rating.

2020 will definitely go down as an interesting year in history, especially here in Australia. We started off the year with bushfires, then COVID-19 swept in, forcing us all into lockdown, and just so we could experience the full spectrum – we closed the year with floods in some parts. 

Although COVID-19 is still with us, 2021 can still serve as a fresh start – especially for our credit scores. So, how can we use the new year to get on top of our credit scores, and ultimately, improve our financial situation? We here at Tippla have put together a few ideas.

Check your credit score

Before we can even begin to improve our credit scores, you need to first know what your credit score is. A lot of people ask us, “how can I check my credit score?”. Unfortunately, there’s not a lot of education in Australia on what your credit score is, and how you can check your credit score. That’s why Tippla is here to help!

When you sign up to Tippla, you can see what two of your credit scores are – one from Equifax and the other from Experian. It’s important to know where you’re at before you start trying to make changes.

You can also contact the credit reporting agencies in Australia directly for a copy of your credit report. In Australia, there are three reporting agencies – Equifax, Ilion (CheckYourCredit), and Experian.

What is a good credit score?

Once you log into Tippla, you’ll see two separate numbers ranging from 0 to 1,200 – these are your credit scores. Your credit scores are categorised on a five-point scale, ranging from below average, all the way to excellent. 

So, how can you know if you have a good credit score? Here’s how Equifax and Experian rank your credit scores.

Understand your credit report

After you’ve checked your credit score, it’s important to understand why you have achieved your given ratings. Whether you’ve received a below-average rating, all the way up to excellent, there is a reason as to why.

If you have a below-average rating, firstly, never fear – there are many ways you can improve your credit score. In fact, Tippla recently put together a quick guide on how you can fix your credit score. 

There are a number of things that can damage your credit report – defaults on your credit repayments, too many credit applications, too many loans, and more. 

How long does it take to improve your credit score?

Unfortunately, you can’t improve your credit score overnight – but it definitely can be done! The main ingredient that can help you improve your credit score is time. Mix in some consistent positive credit behaviour and you have the perfect recipe for a better credit score.

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.

Identify your bad habits

Now it’s time to identify your bad credit habits. A bad credit score can have numerous consequences, such as your loan application being rejected, higher interest rates and premiums, and a number of other implications.

Before you can improve your credit score, you need to identify your bad habits. We’ve put together a list of the most common offenders below.

Defaults

A default is when you don’t make one of your repayments – whether that’s for a loan, a credit card, or even your electricity bill. A default is generally when you haven’t made the repayment within a timely manner and you haven’t made arrangements with your credit provider to defer the payment or set up some kind of payment plan.

As outlined by the Office of the Australian Information Commissioner, a credit provider can list a default on your credit report if:

  • the payment has been overdue for at least 60 days;
  • the overdue payment is equal to or more than $150;
  • a notice has been sent to your last known address to let you know about the overdue payment and requesting payment;
  • a second notice was sent at least 30 days later to let you know that if you don’t make a payment the credit provider intends to disclose the information to a credit reporting body;
  • the credit provider must wait at least 14 days after issuing the second notice before listing the default.

Defaults can leave a big mark on your credit report and generally take 5 years to disappear from your credit report. This means, any time you apply for a loan or some kind of credit, the provider can see that you previously defaulted on your repayment. This could lead to them rejecting your application, as you’re deemed too high of a risk.

If you have been rejected for a loan, Tippla recently put together a step-by-step guide on what you can do next and how you can harness your credit score for good.

If there are any defaults on your credit report, then it might be worth reflecting on why you defaulted on your repayment.

Preparing for life’s curveballs

Life throws us curveballs, and sometimes, this can put us under financial strain. It doesn’t make you a bad person if you are in financial hardship. But one way to protect yourself from defaulting on payments could be an emergency fund.

Having an emergency fund in place could be a good way to protect yourself from life’s unexpected challenges. It’s totally up to you how large your emergency fund is. The general rule of thumb is to have enough money set aside that could support you for a three month period.

It’s OK if you don’t have that money available now. You don’t have to rush. You could set up a savings account and slowly save towards your goal. If you want to take it easy, you could start with the goal of saving one month of income as a safety buffer. Once that is achieved, you could then save your way towards three months. 

Too many credit applications

When you apply for credit, whether it’s a loan, credit card, or another type of credit, it will show on your credit report as a hard enquiry. 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 of 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.

Too many types of credit

The subtleties of your credit score can be confusing and keeping your score healthy can be a delicate balance. Whilst you need to have had some kind of credit in your life in order to have a credit history and credit score, having too much, however, can work against you.

Similar to having too many hard enquiries on your credit report, having too many lines of credit can make it appear as if you are in financial distress. If you have multiple loans or multiple credit cards, it could give off the impression that you are struggling financially, or you’re not able to effectively manage your finances. 

This could make a lender or credit provider deem you as a higher risk and make them less likely to lend you money or increase your interest rates to hedge against the perceived risk. One way you could counteract this is by only taking on finance when you need it, and if you are already repaying off one loan, to not take out a second, for example.

If you’re unsure what’s the best course of action for you, you can reach out to a financial counsellor. They can help you make informed financial decisions that are the most suitable for your current circumstances.

Consolidate your debt

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

The benefits of debt consolidation are numerous, such as simplifying your repayments, reducing your cost to maintain your debts, and having more control over when you can become debt-free.

However, before consolidating your debt, there are a number of things you should consider and check first. Whilst there are numerous benefits to consolidating your debts, sometimes, it may cost you more if you end up with a higher interest rate or have to pay fees.

You should compare the interest rate of the new loan, and find out whether there are any fees or additional costs, against your current loans. If the new consolidated loan ends up being more expensive than your current loans, then it might not be worth it and better to keep things as they are!

Some fees you should keep an eye out for include: penalties for paying off your original loans early, application fees, legal fees, valuation fees, and stamp duty. 

Another thing to watch out for is switching to a loan with a longer term. Although the interest rate might be lower than what you’re currently paying, if you have a longer repayment period, then you might end up paying more in interest and fees in the long run!

New Year, New Me: make 2021 your year

A new year can give you the perfect opportunity to reset and start anew. Make 2021 the year that you look after your credit score, and take control of your financial future. It’s never too late to start, and your friends here at Tippla are here to help you!

While we at Tippla will always do our best to provide you with the information you need to financially thrive, it’s important to note that we’re not debt counsellors, nor do we provide financial advice. Be sure to speak to your financial services professional before making any decisions.

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5 Achievable Credit Score Goals for 2021

credit score goals

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.

credit score goals

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:

SMART budgeting

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!

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How To Improve Your Credit Score? A Quick Guide

fix credit score, improve credit score

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.

fix credit score, improve 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.

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. 

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.

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The Dos and Don’ts of Credit

dos and don'ts of credit, credit score

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!

credit card debt

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

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!

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!

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Credit Score FAQs: You Asked, We Answered

credit score, credit rating, FAQ

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.

credit score, credit rating, FAQ

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.

Equifax and Experian credit scores

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?

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.

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Christmas Is Coming: What To Avoid To Protect Your Credit Score

christmas spending, christmas saving, credit score

How can you avoid a Christmas hangover debt?

christmas spending, christmas saving, credit score

It’s beginning to feel a lot like Christmas! With the holiday season just around the corner, life is about to get much busier and more expensive. So how can you protect your credit score this holiday season?

With Christmas now only one month away, the countdown is officially on! Christmas parties, family gatherings, presents, food and alcohol – the Christmas season can be the most exciting time of the year. For many, it can also be expensive and stressful.

We want you to enjoy this holiday season. 2020 has been a tough year, and we all deserve to let off some steam and have fun. But the celebrations don’t have to come at the expense of your credit score.

The price of Christmas

At the beginning of this year, millions of Aussies started 2020 with a lot of debt, dubbed as a Christmas debt hangover, according to comparison site finder.com.au. 

Unfortunately for most of us, the year didn’t get any better thanks to COVID-19. According to data from finder.com.au, 37% of Australians, which equals 7.2 million people or 1 in 3 Aussies, entered into 2020 with Christmas hangover debt which they would have been paying off until the end of February. However, 1 in 5 Australians were forecast to be paying back their Christmas debt up until May 2020. 

Whilst this year’s Christmas period is likely to be less expensive than previous years, this doesn’t mean it’s not going to cost you. With the onset of the coronavirus pandemic, Christmas spending on presents is predicted to be lower this year.

According to a report from IBISWorld, a provider of industry market research, Christmas spending in key product categories is expected to decline this year, including consumer electronics retailing, which is forecast to be down 2.7% this December from last year.

Spending in department stores is also expected to drop by 1.0% year-on-year, and Christmas spending on pharmaceuticals, cosmetic and toiletry goods is forecast to be lower by 1.5%.

However, IBISWorld’s report shows that although spending on presents might be lower this Christmas, Aussies will be making up for it in their grocery and alcohol shopping, which is expected to increase by 2.8% and 3.6% respectively.

“Families are expected to go all-out on their Christmas feasts this year, with many Australians celebrating their ability to reunite with family after states reopen borders and ease social distancing regulations,” said IBISWorld Senior Industry Analyst, Yin Yeoh.

2020 has been difficult enough, and whilst we’re so ready to say goodbye to 2020 – the pandemic is, unfortunately, going to follow us into the new year. So how can we enter 2021 with one less worry and, as a result, protect our credit scores?

Here is a list of things you should try and avoid if you want to enter 2021 without a Christmas hangover debt.

Avoid: maxing out your credit card

2020 has been hard. We get that! Retail therapy has been one of the ways we’ve all been coping with lockdown measures and everything being cancelled. With Christmas just around the corner, our credit cards are likely to get a workout.

But you might want to avoid maxing out your credit card where possible. Because if you do,  you could be in for a world of pain as you might have to deal with extra fees and charges, adding to an already costly time.

More than that, if you reach your credit card limit, then that’s it until you pay your bill, potentially leaving you stranded!

Another reason why you shouldn’t max out your credit cards is because it could 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. 

How can you cut costs over Christmas?

So how can you avoid maxing out your credit card during this expensive holiday period? One thing you could do is establish a budget. Decide who you’ll be buying presents for, which events you’ll attend and work out all the costs associated with all of these. The earlier you set up a budget, the more prepared you’ll be. All of this could make all the difference for how you enter 2021.

Another cost-saving technique for the Christmas period is opting for Secret Santa. Whilst traditionally, Secret Santa was something you only did at work. But now, it’s becoming a lot more of a trend among friends and even family. Having to only buy for one person instead of multiple people could make a massive difference in how much you spend for Christmas gifts.

For Secret Santa, you can set a price limit for the gifts – small or large, whatever works for all involved! There are plenty of websites where everyone can register what they’d like from their Secret Santa, which also means you can avoid the stress of getting a gift you know the recipient will really love. Some of these websites even take out all of the work for you and provide you with information on where to find that exact gift for the set price.

Another way you could make Christmas more affordable is by making your own gifts! Something easy but handmade can go a long way for your loved ones as well as your credit card. Not particularly crafty? Never fear! Something as simple as painting a terracotta pot for your friend’s new plant babies they’ve collected over the pandemic could be a really thoughtful and inexpensive gift.

Avoid: relying on Buy Now Pay Later 

Buy Now Pay Later (BNPL) services have well and truly taken Australia by storm, particularly among millennials. In fact, studies have shown that millennials prefer BNPL solutions to actual credit cards. In fact, according to consultancy firm AlphaBeta, from 2004 until 2018, the proportion of young people with a credit card fell from 58% down to 41%. AlphaBeta also found that  nearly 70% of Millennials who use Afterpay were found to use their credit cards less.

Whilst the idea of BNPL services is to allow consumers to break down the price of items into more manageable payments, you should be aware of the psychology behind such services and how it can negatively affect your financial situation.

As highlighted by Mel Browne, Author and Financial Wellness Advocate, the process of using cash – the smell, sound, all of it – causes the insular cortex of our brain to light up and it registers as pain. Credit cards and BNPL services don’t have this same effect, so we’re more likely to spend more.

Whilst there are dangers with credit cards, Browne argues that the risks are even higher with BNPL. If you make a purchase of $100 that’s spread over 4 payments of $25, your brain is likely to process this as only $25 – not $100. Because of this, it hurts less and you might end up spending more. This could then lead to you overspending and struggling to make your repayments.

BNPL is like getting a small loan and it could affect your credit score. While Afterpay will only pull a soft enquiry, Zip will send out a hard request. This could cause your credit score to drop. However, if you default on your repayments, this will show up on your credit report, which will hurt your credit score.

If you do decide to use BNPL services, make sure you’re aware of its risks and most importantly, check whether you can afford the fortnightly instalments. 

Avoid: Missing bills or repayments

If you miss paying your bill or making a repayment on one of your lines of credit within a timely manner, then this is classified as a default. Defaults will last on your credit report for 7 years, and will negatively affect your credit score.

Your repayment history contributes to 30% of your Equifax credit score, holding the most weight behind only the number of credit enquiries you make. Because of this, over the Christmas period, you should be aiming to pay all of your bills and make your repayments on time.

How can you do this? One thing that could make all the difference is setting a budget, which we’ll head to now.

Avoid: Failing to budget

A budget can be useful for many things. Namely, it can help you keep track of your expenses. Do you know what you spend your money on? You would be surprised to find that it’s often the small habits that eat into your savings. You may be getting $80 worth of snacks every month without even noticing. That’s where a budget comes into play. A budget can help you dictate where your money should go instead of mindlessly spending it until it’s gone. 

Once you know what you’re spending your money on, a budget could help you ensure that you have enough money for all of your necessary expenses – your bills and repayments. Without a budget, you might lose track of your debt and not have enough money to meet your obligations, resulting in a default and a black mark on your credit report.

A budget could also be really handy for your savings goals. When you know your average monthly spending, you can make realistic and achievable savings goals. You could even shape your spending habits to maximise the amount leftover which you can put into your savings and set your future self up for success!

Captain obvious here! The way you can avoid failing to budget is… to budget! There are so many ways you can budget and numerous budgeting apps that could help get you started. For a breakdown of all the ways, you can budget, head back to school with Tippla’s Credit School!

Avoid: Neglecting your credit report

We know the holiday season can be a busy period, but that doesn’t mean you should neglect your credit score! Many people don’t realise, but your credit score changes frequently. Credit providers report to credit bureaus once a month, but not necessarily at the same time. So your score can change often, even multiple times a day.

If you check your credit score frequently you could 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.

Start 2021 on the right footing

If you want to start 2021 on the right footing #newyearnewme, then one of the best ways to do this is to avoid bringing your Christmas hangover debt into the new year. There are a number of ways you could do that – don’t max out your credit cards, check your credit report, budget, be careful with your BNPL spending and more!

There are also a number of ways to save money over Christmas, such as making your own gifts, doing Secret Santa this year with your family or setting price limits on gifts for friends or family. 

2020 was a hard year. Let’s try and make 2021 easier with these tips and tricks!

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How Does Bankruptcy Affect Your Credit Score?

bankruptcy credit score

bankruptcy credit score

Bankruptcy – it’s a word that you’ve very likely heard before, but you can be forgiven for not knowing much about what bankruptcy actually is or how bankruptcy will affect your credit score and your ability to apply for credit.

Effectively managing debt is an important issue to discuss, especially here in Australia. In 2016, the average Australian household debt was $168,600, with 29% of households holding more debt than they are able to repay. Financial stress has also been identified as one of the key problems in relationships.

What is bankruptcy?

When debt gets out of control, it can lead to bankruptcy. So what is bankruptcy exactly? As explained by the Australian Financial Security Authority, the government agency that manages bankruptcy for individuals, bankruptcy is the legal process when you’re declared unable to pay your debts.

In Australia, an individual can enter into bankruptcy in two ways. You can enter into voluntary bankruptcy by completing and submitting a Bankruptcy Form. Or, a creditor can petition to have you enter a bankruptcy agreement through court proceedings, referred to as a sequestration order. Bankruptcy normally lasts for 3 years and 1 day. However, it is possible to get out of bankruptcy earlier.

Bankruptcy is a scary term. Most of us haven’t had to go through bankruptcy before, but there are still plenty of people who have had to go through some kind of personal insolvency in Australia.

Bankruptcy in Australia

According to figures from the AFSA, in the 2019-2020 financial year, there were 20,762 new personal insolvencies, which refers to people in bankruptcies, debt agreements and personal insolvency agreements. This is lower by 23.3 per cent when compared against the previous financial year.

During this period, there were 12,450 bankruptcies, with Australia recording a drop across all of its states and territories 

bankruptcy in australia

Bankruptcy vs personal insolvency agreements vs debt agreements

We just threw a lot of technical terms at you: bankruptcy, personal insolvency and debt agreements. So let’s break this down a bit. Personal insolvency and debt agreements are two agreement types you can enter into with your creditors and can be done as a measure to avoid bankruptcy.

A personal insolvency agreement (PIA), also known as a Part X (10) debt agreement, is a legally binding agreement between you and your creditors. It can be used as a way to arrange to settle your debts with creditors without becoming bankrupt.

If you enter into a Part X, a trustee will be appointed to take control of your assets and make an offer to your creditors on your part. This offer might be to pay all or part of your debts either in instalments or a lump sum, depending on your financial situation.

Debt agreements, or Part IX (9) debt agreement, on the other hand, are a legally binding agreement between you and your creditor. This agreement can be a flexible way for you to reach an arrangement with your creditors to settle your debts without becoming bankrupt.

In essence, if you enter into a debt agreement, your appointed debt agreement administrator will negotiate to pay back part of your combined debt – whatever you can afford, over an agreed period of time. Once you complete the payment and the agreement ends, then your creditors can’t recover the rest of the money that you owe.

How does bankruptcy affect your credit score?

The exact formula credit bureaus use to calculate your credit score is a well-guarded secret. In saying that, we do know that going into bankruptcy won’t be good for your credit score, as it sends a clear signal that you weren’t able to effectively manage your debt.

Specifically, your report will show your bankruptcy for either:

  • 2 years from when your bankruptcy ends or;
  • 5 years from the date you became bankrupt (whichever is later).

 

As highlighted by the AFSA, bankruptcy will remain on your credit report for a maximum of 5 years, assuming your bankruptcy period lasts for 3 years and 1 day. The bankruptcy status will change on your report depending on whether you completed the agreement within the 5 years. If you complete your bankruptcy, the status on your credit report will change to “discharged’. If you complete your bankruptcy agreement before the 3 year and 1 day period, then the bankruptcy will be displayed on your credit report for less than 5 years.

The impact of bankruptcy

Whilst going bankrupt isn’t the end of the world, it can still have a severe impact on numerous aspects of your life, including your ability to borrow credit. Think of bankruptcy as a last resort. There are numerous avenues you could explore first, such as a Part IX or Part X agreement, which should allow you to avoid bankruptcy altogether. 

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.

In general, once you start the bankruptcy process, your credit score will be negatively adjusted. It will also show on your credit report that you are currently going through bankruptcy. The standard period for completing a bankruptcy agreement is 3 years and 1 day, whereby it will remain on your credit file for an additional two years. 

Once you complete the bankruptcy, the status of your bankruptcy will be changed to “discharged” on your report. It will remain this way for an additional two years, before being removed from your report. After completing your bankruptcy agreement, and the status changes on your report, your score might be adjusted positively.

However, it is important to highlight here that although a bankruptcy will last on your report for a maximum of 5 years, once you enter into bankruptcy, you will be added to the National Personal Insolvency Index (NPII). The NPII shows details of insolvency proceedings such as bankruptcy in the country.

Applying for credit after bankruptcy

Can you still apply for credit when you’re bankrupt? Technically you can still apply for credit even during the bankruptcy process, however, it is completely up to the credit provider as to whether they will give you a loan. 

Bankruptcy indicates to them that you are not able to effectively manage your debt and you are a high-risk borrower. If you have entered into some kind of debt agreement, there might be a condition of your agreement that states you can’t apply for additional credit. If this is the case, then you can’t apply for credit until the debt agreement has been completed. 

In Australia, for anything above $5,788, you must disclose that you are bankrupt or in a debt agreement before you can buy goods or services on credit, unless there are specific clauses in your contract that state otherwise. After your bankruptcy has ended, all restrictions on applying for loans or credit are lifted. Then, it’s up to the credit provider to decide if they will take you on as a customer.

Getting approved for credit

So what might help you get approved for credit after bankruptcy? Again, this is completely dependent on the type of credit you are trying to get approved for, and the provider’s internal policies. 

If you can show that your financial situation has changed and you are now able to effectively manage your debt and have overcome your bad habits, this could go a long way for a creditor. Good banking habits, such as no dishonours and no overdrawn accounts, could also go a long way.

It is worth pointing out here that if you have applied for bankruptcy or are in the process of establishing a debt agreement, but it has not yet been accepted or finalised, you can’t apply for credit. Applying for finance during this period could be construed as fraud.

Bankruptcy and COVID

The impact of COVID-19 has been felt around the world, with the global pandemic affecting almost every aspect of our lives. This extends to bankruptcies. In the wake of coronavirus, the Australian government implemented temporary debt relief measures on the 25th of March 2020 to support individuals and businesses.

The temporary debt relief measures include:

  • Six-month temporary debt protection;
  • Changes to bankruptcy notices;
  • Impacts on people who are currently bankrupt.

You can see all the information on the temporary relief measures on the AFSA’s website. To summarise the main points, the temporary debt protection period for people in financial difficulty has been increased from 21 days to 6 months. During this 6 month period, unsecured creditors are prevented from taking recovery action.

The protection period allows individuals and businesses to seek advice from a free financial counsellor, negotiate a payment plan with creditors, or consider if any formal insolvency options are the right course of action.

As part of the relief measures, there have also been changes to bankruptcy notices. As part of this, the debt threshold required for creditors to apply for a bankruptcy notice against a debtor has increased from $5,000 up to $20,000.

The debtor, AKA the person in debt, then has 6 months to respond to the bankruptcy notice, as opposed to the normal 21 day period. 

Am I eligible for bankruptcy?

If you are in significant financial hardship, you might be wondering “am I eligible for bankruptcy?” There are two requirements you need to meet in order to apply for bankruptcy:

  1. You’re unable to pay your debts when they are due (insolvent) and;
  2. You’re present in Australia or have a residential or business connection to Australia.

In Australia, there is no fee to apply for bankruptcy and there is no minimum or maximum amount of debt or income needed to be eligible.

Before entering into bankruptcy, you should speak with a free financial counsellor via the National Debt Helpline on 1800 007 007. The AFSA has also put together a list of support services for you to access before entering into bankruptcy here.

Who will know you’re bankrupt?

Not everything goes to plan in life. If bankruptcy is unavoidable, then who will be able to see that you’ve gone bankrupt? Unfortunately, your name will permanently appear on a public register called the NPII. The NPII shows details of insolvency proceedings such as bankruptcy in the country.

Generally, the information available on the register will include:

  • Your name, date of birth, residential address and occupation that you disclose on the bankruptcy application;
  • Previous names and aliases, if known and applicable;
  • The type of proceeding, the start date and your AFSA administration number;
  • The name and contact details of the appointed trustee or administrator;
  • The current status of the proceeding, such as whether you have been discharged from bankruptcy.

You can request your details to be hidden from the NPII if you have been the victim of domestic violence or apprehended violence and have been granted an order to protect you, or if you are in a witness protection programme. It is up to the AFSA as to whether your details will be hidden.

Managing debt

One of the ways to avoid bankruptcy is to effectively manage your debt. There are numerous ways you can stay on top and effectively manage your debt. First things first – it’s important to know your financial situation. Being across how much you owe, when your repayments go out and how much of your income is spent on debt repayments could be the difference between financial wellbeing and financial strain.

Once you’re on top of your situation, other ways to help yourself effectively manage debt could include setting up a budget and thoroughly doing your research before taking on any credit to ensure you will be able to make the repayments. Cancelling non essential services, such as your multiple streaming services, could help increase your available discretionary income. 

You could also establish an emergency fund should an unexpected expense or event occur that leaves you without a consistent income or a big bill to pay.

Check your credit scores frequently to make sure you know where you’re at. It’s also a good idea to keep an eye out for any mistakes, and make sure any statuses on defaults and bankruptcy are correct. Once you start repaying your debt, you may see them rise over time. Don’t forget to celebrate your small successes! 

Want to learn more?

Unfortunately, they don’t teach you about your credit score in school. But it’s never too late to learn! Sign up to Tippla’s free Credit School, where you can learn all the ins and outs of your credit score, including how to improve your rating. Embrace your inner finance geek and go back to school!

At Tippla we’ll always do our best to provide you with the information you need to financially thrive, but it’s important to note that we’re not debt counsellors, nor do we provide financial advice. Be sure to speak to your financial services professional before making any final decisions.

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What’s the Most Efficient Way of Building Your Credit Score?

what is the most efficient way of building your credit score
Most efficient way of building your credit score

Getting to know your credit score

Having good credit can be an invaluable asset if you’re on the hunt for finance. The ability to borrow money opens up many opportunities, and with a good credit score, you will be able to borrow larger amounts and gain access to lower interest rates.

On the flip side, credit debt – whether it’s through credit cards, other loans, etc. – can quickly escalate out of control. The pitfalls of abusing credit can lead to long-term financial disaster if you’re not careful.

It’s a lot easier to maintain a good credit score than it is to repair one. So, start as you mean to go on and then maintain that excellent credit rating. Not sure how you can possibly do that? No problem! We’ve covered everything you possibly need to know here in this article.

Do I have a good or bad credit score?

Before we get into it, how do you even know if you have good credit or not? In order to understand how good or bad your credit score is, it helps to understand how credit scores are calculated here in Australia.

Basically, scores range from 0-1,200 depending on the agency, with the highest number being the very best. A score under 549 is generally considered “bad” or in serious need of work. If you fall into this category, don’t fret — there are things you can do to improve that score and be on your way to financial freedom in no time.

Why do I have a poor score?

Figuring this out can be tricky, as your credit score depends on a number of factors. To figure out what things are currently wreaking havoc on your score, look at your credit accounts and how much debt you’re currently managing. Are you over-utilising the credit that you have? Using significantly more than 30% of your available credit is not wise. Bringing down that credit-to-debt utilisation will make a huge difference in your score whether you realise it or not.

For sure, overdue bills make an impact, especially anything overdue by more than 60 days that’s over $150. Applying for multiple lines of new credit in a short period can also appear desperate to creditors and will cause problems. It’s important to make sure that you are making at least minimum payments on all of your outstanding debt. Any progress is better than no progress at all.

Simple steps to improve your credit score

Taking a good look at the way you’ve been doing things means taking responsibility for any of the mistakes you’ve made. It also means you may find you’ve been doing some things correctly.

For one – having several kinds of credit is always a good thing. In repairing your credit, you should always consider the types of credit you already have. If you have a car loan, a home loan, and a few credit card balances, for example, this shows creditors diversity on your part. Having a few older accounts is also very good, so don’t close inactive accounts where possible.

Ultimately, credit is not a simple thing, and repairing it takes time. The good news is that there is hope, here are some steps you can take to get started:

1. Pay off your current credit debts

The first thing you can do to raise your credit score is to pay off current credit balances before acquiring new debt.

In particular, we’re talking about credit cards here. The worst way to pay back a credit card debt is by paying the minimum payment each month. This can double, triple, or even quadruple the amount that you have to pay back. The interest on your balance will grow over time and you’ll get almost nowhere in repaying the debt. This is the biggest trap people fall into by using credit cards too often for unnecessary purchases.

If you have a current overdue balance on a credit card that you can pay down, pay it as quickly as you can before applying for new debt.

2. Paying on time

Faithfully paying your monthly balance on your credit debts is the best way to secure a good credit score. When a payment or two is missed or late payments occur, your credit score suffers badly.

It is especially important never to let a payment be overdue for more than 60 days if the payment is for more than $150.

Be prepared to make your payments a few days before the actual due date. That way, even if there is a delay in transferring funds, like an internet problem or some unforeseen circumstance, it’s much less likely to cause a problem.

It is much safer and much cheaper overall to remain completely within the due date range by paying a few days early, routinely, so your credit score never suffers.

3. Finding the best interest rate

In terms of credit cards, in Australia applying for a lower interest debt so that you can switch your balance over will not affect your credit score. It’s sound financial practice to utilise a credit card that offers a very low interest rate for a fixed period.

But do so with care, and do not simply apply for new cards that are not necessary. Credit cards can be easily over-used, and before you know it you may inadvertently rack up thousands of dollars in “small balances” on various cards, and you may get in over your head very quickly.

So, it’s super important to be aware of the pitfalls and dangers of applying for too many cards. A better strategy is to maintain one or two credit cards and keep the balances paid off and paid on time, every month.

4. Credit can be diversified to your advantage

If you carry a mortgage, and the payments are affordable, that is a good foundation for building credit. Be careful when diversifying into other forms of credit and keep your debt-to-credit ratio within an acceptable range.

If you build a good working relationship with your primary financial institution, your advisor can help structure how your credit is laid out and help to plan repayments on an affordable schedule.

Ensuring your payments are always on time and making more than the minimum required payments will guarantee your credit score works to your advantage and not against you.

How long does it take to repair your credit?

Australian credit reporting agencies

A good place to start with credit repair is by getting a copy of your credit report. In Australia, the main credit reporting agencies are:

  1. Illion (formerly Dun and Bradstreet Australia)
  2. Equifax (previously known as Veda)
  3. Experian

You can request a copy of your report each year from any of these agencies. There is a good chance that there will be a mistake on your report that you can report to the creditor, to the credit reporting body, or the Privacy Commissioner if needed. So make sure all your information is correct – there’s nothing worse than paying the price for something that’s not even true!

Also, ensure that you are paying all of your bills on time, and try not to take on any additional debt at all. Begin by paying off the highest interest cards and bills and, if you are able to, switch to lower interest cards and services.

By lowering the total amount of debt you owe, you are well on your way to a better score. Even the smallest things like setting up automatic bill payments can help you to catch up and keep you out of debt in a relatively short period.

Expect improvements in 12-18 months

Depending on your initial score, you could start to see improvement in as little as 12-18 months if you are using your credit wisely. This means you should definitely keep track of your monthly habits and address the problems you have using credit.

It is always a wise idea to add positive credit to your reports every month by paying on time and keeping your utilisation down. The lower your score is, the longer it will take to improve. It may take several years to improve a very low score. So, don’t waste time!

Bring a sense of urgency and energy to your mission to improve your score, by thinking long term. A good credit score is always a product of responsible and intentional habits.

Establishing a credit score from scratch

The best strategy to begin establishing a good credit score is to start with one credit card or a small loan and build up a history of regular, on-time payments.

If your first credit card has a $1,000 limit, don’t use the entire amount. Keep the balance low. Pay off the first $500 before you rack up another $500. This way, your credit score will show positive movement because you have proven you are trustworthy. That means a lot when applying for other credit cards, lines of credit, or even a mortgage down the road.

Be cautious when your bank offers to raise your credit limit because you have proven yourself a good customer. Keep your credit card balances as low as possible, even when you accept a higher limit.

How do credit changes affect a score?

Australia’s credit reporting system has recently seen an overhaul, with the brunt of the changes only just coming into effect. These changes mean that almost everyone’s credit score will have recently changed.

Before 2014, credit reporting institutions only shared negative details about your financial history. This included things like bankruptcies, defaults, late repayments, and credit card applications were shared between institutions.

Since 2014, the reporting of positive credit events has been in practice. As it wasn’t a legal requirement, most big banks didn’t report positive credit events. Now this is being enforced, so all credit reporting institutions will also have information on the positive credit transactions you have made. Good, regular payment histories, the types of credit you have, and repayments made are all being shared. This should mean that your credit score will more accurately reflect your relationship with credit.

Some people will see their credit rating improve automatically as the increased amount of data demonstrates that they are good credit risks. In turn, they will be offered better interest rates.

Other people may see their credit rating decline because of the change. However, there is no doubt that better information being shared about negative credit transactions will lead to more accurate credit scores.

As more information will be shared, there will be more detail on your credit report. If you notice an error in your credit report, it pays to get the error fixed as soon as possible.

How to report and fix an error

Your credit report contains a lot of information about you and your financial status. It pays to ensure that the information within it is correct. The better your credit score, the more credit you can get and the lower interest rates will be. Follow the steps below and within a matter of months your credit score could have improved dramatically.

Option 1: Report it

If you notice an error in the credit report from any of the three credit reporting agencies, the first thing to do is to contact the credit reporting agency directly. They will investigate whether there is an error on your credit report by discussing it with the relevant institution. If an error is confirmed, your credit report will be corrected and information will be updated free of charge.

Option 2: Talk with your lender

If the investigation finds that there is no error in your report, the next step will be to talk directly with the credit provider who reported the error. Explain to them the listing is incorrect. If they still dispute the issue then they must provide you with information on why the credit report is accurate. They must also supply you with evidence supporting this claim.

Option 3: Independent dispute resolution

If you still disagree, you can dispute the credit report through an independent dispute resolution. Who to turn to depends on the type of credit being disputed. For example, the Financial Ombudsman Service typically handles issues with credit cards and loans, whereas the Energy and Water Ombudsman will handle issues arising from utility bills.

Option 4: Office of the Australian Information Commissioner

The final place that you can turn to is the Office of the Australian Information Commissioner (OAIC). You must have previously attempted to resolve the matter through the above steps before the OIAC will hear your complaint.

Get on top of your credit, with Tippla

For no cost whatsoever, you can utilise Tippla’s smart monitoring and tracking to gain a new perspective on your credit score. By comparing your score from Experian and Equifax, we’ll help you understand it more deeply so you can get back on track financially.

For smarter credit checks, choose Tippla.

While we at Tippla will always do our best to provide you with the information you need to financially thrive, it’s important to note that we’re not debt counsellors, nor do we provide financial advice. Be sure to speak to your financial services professional before making any decisions.

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Why do credit checks lower a credit score?

why do credit checks lower a credit score
Why Do Credit Checks Lower A Credit Score

No clue about credit enquiries? Join the club

If you’re wondering why credit checks lower a credit score, you’re not alone. Nearly two-thirds of Aussies don’t even know their credit score and 1 in 7 Aussies are too scared to check. New research also suggests that 50% of Aussies surveyed don’t know how and where to check their credit score. So, it’s fair to say a lot of us are at a bit of a loss. There is a large gap between what a credit score really is, and the public perception of what having a credit check does and does not mean. So, how do we close the gap?

The best place to start when fighting misconceptions, is with the facts! So, we’ve answered a few common questions to help you get acquainted with your credit score and why having a credit check might lower your credit score.

Does checking your credit score hurt your file?

No! Checking your credit score does not damage your credit file. Surprised? You’re not the only one. It’s a common myth, as 19% of Aussies believe that checking on their credit score will hurt their file. As an individual checking your credit score, you can breathe a sigh of relief – you’re in the clear. Not only is your credit score safe, but so is your wallet, as most basic credit checks come free of charge.

If third-parties, such as lenders, conduct check credits the story can be a little different.  Lenders conducting credit checks could mark your file with a hard enquiry, leaving a minor impact on your credit file. 

What is a credit score made up of?

Several factors make up your credit score, each weighted differently depending on their significance. The next step in getting to know your credit score is uncovering what makes it tick. The key to maintaining a healthy credit score is understanding how different financial decisions impact your score. Take a look at the 5 factors that affect your credit score:

Bill payment history

Weighing in at number 1 is bill payment history. The quality of your payment history determines 35% of your credit score. So, what does it mean to have a pristine payment history? Mostly, it’s the little stuff. Such as paying bills on time and making timely repayments on credit cards and loans. The biggest favour you can do your credit score is making your payments on time each month. It’s a win-win – avoid nasty late fees and keep your credit score fresh! Your future self will probably thank you.

Amount of debt

Debt level attributes to 30% of your credit score. Credit score agencies, such as Equifax and Experian, analyse particular factors of your debt to calculate your credit score. These include, but are not limited to, your total debt amount, the ratio of credit card balances to your credit limit (also known as credit utilisation) and the correlation of a loan balance to the original loan amount. 

As a general rule, it’s good practice to maintain credit utilisation at 30% or less. In other words, only charge up to 30% of any available credit on your card. Much like bill payment history, losing control of debt can significantly damage your credit score. The good news? It works both ways. If you work to pay off your debt, you can drastically improve the health of your score. What a bonus!

The age of your credit history

When it comes to credit checks, age matters. The age of your credit history accounts for 15% of your credit score. Age demonstrates experience. Therefore, the older your credit history, the stronger your credit score. Don’t shy away from the odd wrinkle or frown line, as it highlights how you handle credit. Opening and closing accounts can alter your average credit age, so keep accounts open, even if you no longer use them – provided they’re paid for, of course.

Diversity of history

Age without diversity holds little purpose. So, while your credit history ages, it’s important to remember to diversify your credit. Your credit history should show two basic types of credit accounts: revolving accounts and instalment loans. A revolving account is an account that can incur debt where the borrower is not obligated to repay the outstanding balance each month. An instalment loan is a loan that you must repay over a set period, such as a car loan or mortgage.

To really hit peak diversity on your credit file, you could take out different loans for a variety of assets, such as a car or a home, as well as credit cards and personal loans. Credit diversity only accounts for 10% of your score, so it’s more beneficial to focus on bill payments and to repay lingering debt.

Number of credit inquiries 

Credit enquiries make up 10% of your credit score. Conducting your own credit check won’t reflect negatively on your credit score. However, if you submit a loan application, you will incur an enquiry on your credit report. This enquiry simply demonstrates that you’ve made a credit-based application.

The average Australian will typically have a few credit enquiries on their report – it’s expected, especially given how we all shop around to find the best possible rates and offers. However, several enquiries, especially during a short period, will negatively impact the health of your score. So, keep that in mind when you’re looking to borrow money, or take out a new credit card.

Hard enquiries vs soft enquiries

Your credit score contains a variety of intricacies and different types of enquiries have varying levels of impact. Credit enquiries are classified into two categories; hard enquiries and soft enquiries. The critical difference is that a soft enquiry does not negatively affect your credit score health; however, a hard enquiry certainly will. For example, if you decide to take out a personal loan the lender will conduct a credit check, leaving a hard enquiry on your credit report. 

As an individual, you may not be penalised for conducting your own ‘credit check’. Submitting a request to review your credit score registers as a soft enquiry and has no effect on your score. Soft enquiries are only visible to you on your personal credit report. It’s perfectly normal to see several soft enquiries on your credit report. In fact, it’s good to become familiar with the notes on your report so you can see what does and doesn’t affect your credit score.

When we venture into hard enquiries, things become a little more grey. A hard enquiry will occur when you authorise a third-party, such as a lender or credit card issuer, to review your credit report. The penalty for a hard enquiry varies, however, according to FICO you may only incur a 5 to 10 point drop per enquiry. Even though hard enquiries are pinned to your credit report for 2 years, they may only impact your score for a few months. 

Examples of hard vs soft enquiries

The essential difference between a hard and soft enquiry lies in whether you give the lender permission to check your credit. To help you identify hard and soft enquiries on your credit report, here are a few examples.

Common hard enquiries

  • Mortgage applications
  • Car loan applications
  • Credit card applications
  • Student loan applications
  • Personal loan applications
  • Apartment rental applications

Common soft enquiries

  • Checking your credit score with Tippla!
  • ‘Pre-qualified’ credit card offers
  • ‘Pre-qualified’ insurance quotes
  • Employment verification (e.g. background check)

Other types of credit checks may be classified as either a hard or soft enquiry, including an insurance company enquiry, or a credit check conducted by your cable or internet providers.

How to minimise the impact of hard enquiries

Borrowing money for that first family home, or your dream car is a part of life. Don’t shy away from applying for finance you need just to avoid a hard enquiry on your credit report. There are a few ways you could minimise the impact of hard enquiries. 

Firstly, don’t let the fear of a hard enquiry stop you from browsing interest rates when shopping for a home or car loan. Some credit score providers, such as FICO, allow for a 30-day cooling-off period before specific loan enquiries are reflected on your credit score. Credit providers may also combine similar loan enquiries into a single enquiry on your credit report. This will lessen its effect on your score, as long as they were made within a certain window. 

So, when hunting down the best loan, don’t settle for the first one you see. Set a designated window to shop without the worry of it severely affecting your credit score.

What is a bad credit score?

A credit score demonstrates to lenders your ability to repay your loan and can also reveal the likelihood of incurring an adverse event in the following months. A bad credit score is typically anything below 509. 

An Equifax or Experian score is the most common way to measure your credit score. The score ranges from 0 to 1200, 0 being the worst and 1200 is perfect. So, you’ve requested your credit score, and now you have your number, but what does it actually mean? Good question. Below is a handy breakdown of what your score indicates:

Score What it means
Below average to average (0-509) It’s more likely that you may incur an adverse event, such as a default, bankruptcy or court judgement in the following 12 months
Average (510-621) You may likely incur an adverse event, such as a default, bankruptcy or court judgement in the following 12 months
Good (622-725) It’s less likely that you may incur an adverse event that could damage your credit file in the following 12 months
Very good (726-832) It’s unlikely that you may incur an adverse event that could damage your credit file in the following 12 months
Excellent (833-1200) It’s highly unlikely that you could incur an adverse event that could damage your credit file in the following 12 months

Can I check my credit score for free?

By jumping online and submitting a few details, you can generally check your credit score for free. There is a myriad of sites that will deliver a bog-standard credit score calculation from a single credit reporting agency.

Credit scores are vital for understanding your overall financial health and assessing your suitability for credit approval. So, we think you deserve the big picture, not just a single frame. We believe it’s time you meet Tippla.

Meet Tippla

Do you want to check, monitor and improve your credit score? What if we said it didn’t have to cost you anything? That’s what you get when you sign up to Tippla!

Subscribe to Tippla for intelligent monitoring and tracking of your credit score and watch it grow with smart analysis and insights. Gain a deeper understanding of your credit score by comparing your score from multiple credit reporting agencies. 

Tippla – for smarter credit checks

 

Disclaimer: At Tippla, we’ll always do our best to provide you with the information you need to thrive financially, we’re not debt counsellors, nor do we provide financial advice. Be sure to speak to your financial services professional before making any decisions.

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How to understand your Equifax score

how to understand your equifax score
How to understand your Equifax score

What does my Equifax score mean?

Ah, your Equifax credit score. It’s the small, three or four-digit number that often stands between you and your financial freedom. Maintain a good score and it’ll make life a hell of a lot easier when you need to get approved for a loan. Let your credit slip though, and it can leave you momentarily hamstrung – unable to access the money you need or forcing you to lean on more expensive (often less trustworthy) lenders.

Why your credit score matters

If you’ve ever applied for a credit card, a personal loan or a home loan, you probably already know just how vital your credit score is. Yet, despite its importance, most of us know more about how our Uber rating works than our credit rating – especially when it comes to how the number is calculated.

If you’re reading this, then chances are that’s why you’re here.

Equifax is one of the three major credit reporting agencies in Australia. That means, they’re more than likely the guys behind your credit score. How did they calculate it? What does it mean? How can you change it? These are the questions we’re here to answer.
So let’s take a look at all there is to know about your Equifax score, and how you can ensure it works for you, not against you.

Equifax credit scores 101

Equifax (formerly known as Veda) is one of the largest consumer credit reporting agencies in the world, and by far the largest in Australia. So, if the name sounds familiar – that’s probably why!

An Equifax Score is given on a scale of 0 to 1200, 0 being the worst and 1200 being the best. In a nutshell, credit scores are designed to neatly summarise your financial responsibility in a single number. Agencies like Equifax analyse your financial history and use this data to assign you a number that reflects just how good you are at managing your money. Your score is meant to indicate your risk level to lenders and predict the likelihood of you keeping up with repayments on a new credit card or loan.

Of course, your Equifax Score isn’t the only factor banks and lenders might take into consideration when reviewing your finance application. It just happens to be a very important piece of a much larger puzzle.

Key contributing factors

So, what actually contributes to your final credit score? While the actual mathematics are too complicated to get into here, let’s look at a typical breakdown of the different things Equifax takes into account.

Bill payment history (35%)

The single most important factor in the calculation of your credit score is your bill payment history. It accounts for a little over a third of your final figure, so timely payments are crucial here. If you’re always late to make your repayments on a credit card or a loan, this will definitely bring your credit score down. More serious issues like charge-offs, debt collections, repossessions, tax liens, foreclosures or bankruptcy can be even more disastrous. So, it’s important to stay vigilant!

Level of debt (30%)

The second most important factor is your level of debt. Equifax will take into account the overall amount of debt you have, your ‘credit utilisation’ (the ratio of credit card balances to credit card limits), and the ratio of your loan balances to the original loan amounts. In other words – how much you’re borrowing and how quickly you’re paying it off. To score well you should aim to pay down your debts as quickly as possible and work to keep your credit utilisation as low as possible (ideally under 30%).

Age of credit (15%)

Here, Equifax will ask questions like – how old is your oldest credit account? And, what is the average age of all your credit accounts? The answers to these will offer insights into how experienced you are at handling your debts. A long-held account may suggest reliability, especially if repayments have been regularly met over time. All banks and lenders will be looking for this trait in their prospective borrowers.

Mix of credit (10%)

The greater the mix of credit on your credit report, the better it is for your score. It’s good to show experience in responsibly holding both instalment accounts (loans) and revolving accounts (credit cards). Holding loans for a wide variety of assets – higher education, a car and a home, for example – will also work in your favour, provided they are faithfully repaid.

Credit enquiries (10%)

The final factor is a tripping point for many, particularly those with a low credit score. Every time you submit an application that requires a credit check, a note is placed on your report. If multiple notes are placed on your report over a short period of time, say a handful within the space of a month or two, points will begin to be deducted from your score. Since lenders will always check your credit report, it’s wise to keep your applications for finance to a minimum and wait for an answer on one before you apply with another.

Why does my score change?

Your credit score will change because there are so many factors that are considered when calculating your score, there are many reasons why your score may have changed. A few of the more common reasons for score fluctuations are:

  • You submitted an application: A recently approved credit card or loan application can strengthen your score, while a recently denied application or the submission of multiple applications in a short amount of time can damage it.
  • You changed your credit limit: Altering the terms of your current credit cards or loans can also change your score. Increasing your credit card limit or applying for a personal loan top-up may decrease your score, while decreasing your limits can increase your score.
  • You cancelled a credit card or paid off a loan: Unsurprisingly, paying off debt and streamlining your finances can improve your credit score.
  • A credit provider gives new information: Credit providers don’t immediately pass all of their information onto Equifax. It can take time for data to appear on your report, which can result in your score changing at seemingly random times.
  • A listing expired on the report: All the information on your credit report has an expiration date. Depending on the data that is removed, it may affect your score in a positive or negative way.
  • You paid a bill late: Your credit score may drop if you don’t pay a bill or make a monthly repayment on time. On the flipside, an individual with a low credit score may be able to increase it by paying bills and making repayments on time.

How often does my Equifax score get updated?

The short answer is your credit score is updated every time it’s calculated, i.e. whenever someone views your credit report. But that doesn’t mean that it changes from minute to minute, day to day.

Most of the time, your Equifax Score is updated monthly. This is because most creditors supply Equifax with new information on a monthly basis. While your score may change when that information is provided, it generally comes in at around the same time – at the start of a new month – so you can expect your score to remain relatively stable in the meantime.

The key differences between a ‘report’ and ‘score’

What’s the difference between a credit report and credit score? In truth, not much – they essentially offer the same information just in different forms:

  • Your credit report provides a comprehensive overview of your finances – your lines of credit, your payment history, and any other details relevant to your ability to manage credit and debt.
  • Your credit score condenses this information down into a simple number between 0 and 1200 to indicate how much of a risk you represent as a borrower.

If someone uses the term credit rating, they simply mean credit score. These terms are used interchangeably here in Australia, so it can get confusing depending on where you’re getting your info from. The key thing to remember is the difference between a report and a score/rating, understand that and you’ll be set.

What do the different score ranges mean?

Equifax divides their credit scores into five brackets. Your credit score will fall into one of these ranges, so here’s a quick explanation of each:

Rating Score Reasoning
Excellent 833–1200 Scores of 832 or above are in the top 20% of Equifax’s active population. The organisation calculates that the odds of keeping a clean credit file are five times greater than the average individual. The numbers suggest that it is highly unlikely that any sort of adverse event (from failing to make repayments to personal bankruptcy) will occur in the next year, making these individuals prime candidates for banks and lenders. This is where you want to be.
Very Good 726-832 While not at the very top of the pile, scores in this range are still comfortably above average. Equifax calculates that individuals in this range are two times more likely than the average individual to keep a clean credit file. The numbers suggest that it is unlikely that any sort of adverse financial event will occur in the next year. So if you’re here, hang tight!
Good 622-725 Scores in this range sit just above average. Equifax calculates that individuals in this range are slightly more likely to keep a clean credit file than the average individual. The numbers suggest that it is less likely that any sort of adverse financial event will occur in the next year. This isn’t a bad place to be, but there’s certainly room for you to improve.
Average 510-621 Scores in this range are rated average, meaning that Equifax calculates the odds of keeping a clean credit file as average. The numbers suggest that it is likely that an adverse financial event will occur in the next year, which may make it harder for you to gain approval for a credit card or loan. If you fall into this bracket, it’s time for you to do a serious spring clean of your finances!
Below Average 0-509 Scores of 509 or below are in the bottom 20% of Equifax’s active population. The organisation calculates that the odds of keeping a clean credit file are well below those of the average individual. The number suggest that it is more likely that an adverse financial event will occur in the next year, making it very difficult for your to be approved for credit or loans. This is the danger zone. You’ll need to implement some serious changes to get your score on the road to recovery. Fortunately, the only way is up from here!

I don’t have a credit score – should I be worried?

No score is not the same as a score of zero, so there’s no need to panic if you’re new to lending. That said, if you don’t have any sort of personal credit or loan history, it’s impossible for Equifax to assess you as a borrower. If you haven’t had (or applied for) any of the following under your own name, you won’t have a credit score:

  • A credit card
  • A loan
  • A mobile phone contract
  • A utility account

Most lenders require an applicant to have some form of credit history before they will approve a credit card or loan application. The good news is, taking out a phone contract or putting a utility like power or water in your name, can help you to quickly build a healthy score. Especially if you pay your bills on time! So, maybe keep that in mind when you’re looking into your next phone plan.

Why you should care about your Equifax credit score

When most of us think of debt our mind wanders to sky-high interest, crippling repayments and maybe even a pair of concrete shoes if you disappoint the wrong creditor. Whether fact or fiction – credit and debt generally gets a bad rap.

In reality, access to money that you don’t have is vital for your long term financial security. Whether it’s a university degree, business capital or a place to call home, there are certain investments in life that the average Aussie can’t afford to pay for upfront but still needs to prosper in life.

A good credit score is vital if you are to seize new opportunities and secure these investments. So, if you take care of your Equifax Score now, you can be confident that it will take care of you later.

Meet Tippla

Do you want to check, monitor and improve your credit score? What if we said it didn’t have to cost you anything? That’s what you get when you sign up to Tippla! Join Tippla for intelligent monitoring and tracking of your credit score to help you smash your financial goals with smart analysis and insights. We’ll help you gain a deeper understanding of your credit by comparing your score from multiple reporting agencies. 

For no cost at all, get your financial well being on track with Tippla in your pocket.

 

While we at Tippla will always do our best to provide you with the information you need to financially thrive, it’s important to note that we’re not debt counsellors, nor do we provide financial advice. Be sure to speak to your financial services professional before making any decisions.