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July 12, 2021September 7, 2021

Bad Credit Loans | What Are They & How To Apply for Them

If you have a below-average credit score but you still want to take out a personal loan, what are your options? There is such a thing as bad credit loans. Tippla has provided a breakdown of bad credit loans below – what are they, the pros and cons of poor credit loans and how to apply for them.

What are bad credit loans?

As the name suggests, a bad credit loan is a loan you can take out when you have a “bad” credit score, also known as below average. The point of a bad credit personal loan is to allow people who don’t have a stellar credit history the opportunity to still access finance.

This can be helpful for people who need a loan but don’t have a great credit history and don’t have the time to improve their credit score.

Why does my credit score matter when applying for a loan?

Your credit score is a number ranging from 0 – 1,200 and it acts as an indicator of how reliable of a borrower you are. Your credit score is based on your recent credit history – your credit applications, your repayment history, the number of credit accounts you have, and any negative entries if applicable (defaults, bankruptcies, court judgements, etc).

Because of this, your credit score gives credit providers a helpful overview of how you have managed credit in the past. Lenders and banks use your credit score to judge how much of a risk you pose to them when you apply for some kind of credit, whether it be a loan, credit card, mortgage and more.

The higher your credit score, the more reliable of a borrower you are perceived to be. This can go a long way when it comes to applying for credit. This is because you’re more likely to be approved for a loan if you have a good credit score and positive credit history.

On the reverse side, if you have a bad credit score and a bad credit history, then your loan application might be rejected and credit because lenders will see you as too much of a risk.

What is a bad credit score?

Your credit score will fall somewhere on a five-point scale: excellent, very good, good, average and below average. Below average is also referred to as a “bad” credit score.

Where your credit score falls will depend on the Credit Reporting Agency (CRA). In Australia, there are three CRAs – Equifax, Experian and illion. Each of these three agencies collects your credit information and generates your credit scores and reports. That means you have not one, but three credit scores and reports.

Equifax measures its credit scores on a scale from 0-1,200, whereas Experian and illion use a scale ranging from 0 – 1,000. Here’s how Equifax and Experian categorise their credit scores.

Source: Equifax and Experian

The pros and cons of bad credit loans

Are bad credit loans a good or a bad thing? Well, there are arguments for both sides. So let’s take a look at the pros and cons of bad credit loans.

Pros

1. Access to finance

One of the good things about bad credit loans is that it provides people who don’t have the best credit history with access to finance. Generally, the turnaround for these types of loans is quite fast, which can be helpful if you need cash quickly.

2. Can help you rebuild your credit

If you take out a loan, it can be your opportunity to rebuild your credit history. If you can make all of your repayments on time, and you can pay off the loan in full, these actions can both positively contribute to your credit score.

3. Extended repayment period

In Australia, you can get a range of bad credit loans, with varying repayment periods. This means you don’t have to pay back the amount you borrowed straight away, you can space out your repayments into affordable instalments.

Cons

1. High-interest rates

Lenders are taking on more of a risk by lending to people with a bad credit score. Because of this, they offset their losses with high-interest rates. Depending on where you go, you could be facing interest rates of up to 30% per annum in the most extreme cases.

The amount you pay in interest can add up over time, and it can hurt your wallet. You should make sure you can afford the repayments, including any interest and fees and charges, before taking on a loan.

2. Fees

Not only do bad credit loans come with higher interest rates, but they can also come with more fees. Again, this is a way for lenders to offset the risk of lending to someone with a bad credit score.

Just like interest, the amount you pay in fees can add up quickly if you’re not careful. That’s why it’s important to read the terms and conditions before taking on a loan.

3. Lower borrowing limits

Typically, if you have bad credit, then you might not be able to borrow as much as you’d like. This will differ from lender to lender, and you might find some that are willing to lend higher amounts, but again, you’ll likely be paying for this in interest and fees.

4. Collateral requirements

Some lenders may require you to offer some kind of collateral to take out a loan. If you default on the loan, then you could be at risk of losing your collateral.

Who offers bad credit loans?

Many lenders offer loans for people with bad credit. A simple google search for bad credit loans will produce pages of results of lenders who are willing to provide loans.

Typically speaking, you are more likely to find non-bank lenders who are willing to take on the added risk of lending to someone with bad credit.

How to apply for bad credit loans

Before applying for a loan, you should make sure you meet the criteria of the loan. In Australia, you will typically need to meet the following criteria:

Be at least 18 years old;
Be an Australian or New Zealand citizen (or Australian permanent resident/have an eligible Visa);
Live in Australia;
Be employed and receive a regular income.

You can apply for bad credit loans similar to how you would apply for any other loan, however, it is a good idea to do your research before applying. You should try and compare the different options out there, and see which lender can offer you the best conditions, such as interest rates and associated fees.

Bad credit loans: the verdict

To sum it all up, there are pros and cons to bad credit loans. If you are unsure if this type of loan is right for you, then you can reach out for free financial advice with a financial counsellor from the National Debt Helpline.

July 5, 2021September 7, 2021

Why Is Your Credit Score Important? A Quick Overview

Whilst your credit score is only a number, it actually can impact your life in a very real way. So why is your credit score important? Tippla has the answers for you below.

What is a credit score?

Before we answer the question “why is your credit score important” it’s important to cover the basics first. What is a credit score? If you’re not sure what a credit score is – you’re not alone. In Australia, 73% of Australians don’t know their credit scores or why they are important.

Your credit score is a number ranging from 0 – 1,200. This number represents your creditworthiness (translation: how reliable of a borrower you are). The higher your credit score, the more reliable of a borrower you are perceived to be.

What is a reliable borrower?

A reliable borrower is someone who makes repayments on time. If a person takes out a loan, a reliable borrower would be expected to make their monthly repayments on time and during the length of the loan, completely repay their debt plus interest.

For a lender, a reliable borrower is seen as less of a risk, as they are more likely to repay the loan in full. A risky borrower, however, might miss payments, or default on their repayments. This means the lender could lose money if the borrower can’t repay the loan. A risky borrower would likely have a below-average credit score.

Who can see my credit score?

Your credit score is sensitive information. This means, not just anyone can see your credit score. You need to provide consent in order for a company to see your credit score.

So when does this happen? Every time you apply for credit – this could be a loan, credit card, phone plan or utilities, you are giving the company you are applying to permission to view your credit score and credit report.

When the credit provider looks at your credit score and report, they can judge how risky of a borrower you are, and determine what products they would be willing to offer you. If you have a below-average credit score, your application could be rejected.

How many credit scores do I have?

In Australia, there are three credit reporting agencies (CRAs) – Equifax, Experian and illion. Equifax and Experian are the two largest global CRAs. Each month credit providers report consumer credit information to either of these three agencies. The information these agencies receive from credit providers is what they use to calculate your scores.

Because of this, you have not one, but three credit scores in Australia. You have one each from Equifax, Experian and illion, and an adjoining credit report which holds all the information your credit score is based on.

What’s the difference between your credit score and credit report?

Your credit report holds all of your recent credit history. This includes any current credit accounts – loans, credit cards, utilities, phone plan, etc. It will also have your repayment history for the last two years, any closed credit accounts from the past two years, and any negative entries (defaults, bankruptcy, court judgements, etc).

Your credit score is a number ranging from 0 – 1,200. Your credit score is based on the information held on your credit report. If your credit report shows a good credit history, then you will likely have a high credit score. However, if there are multiple negative entries on your credit report, then your credit score will likely be lower.

How are credit scores calculated?

This question is a bit tricky because the exact algorithm credit agencies use to calculate your credit score is a well-kept secret. Not only that, but each of the three agencies calculates your score slightly differently. This means your credit scores can be different across the three agencies.

Nonetheless, we do know the general factors they consider when calculating your credit score.

These are the general factors used to calculate your Equifax credit score:

The number of accounts you have;
The types of accounts;
The length of your credit history;
Your payment history.

For Experian, the main factors it considers when calculating your credit score are:

Type of credit providers that have made enquiries on your report;
The type of credit you have applied for;
Your repayment history;
The credit limit of each other credit products;
Negative entries;
The number of credit enquiries (credit applications) you have made.

When is a credit score used?

Credit providers, such as banks, lenders and other financial institutions, use your credit score to evaluate whether they should give you credit or lend you money. They use your credit score to determine how much of a risk you pose and decide whether you qualify for a loan or credit, how much interest they should charge you, and how high your borrowing limit should be based on your credit history.

Why is your credit score important?

With all of this in mind – why is your credit score important? There are several reasons why which we’ve outlined below.

Your credit score can help or hinder your application

Your credit score can be the difference between you being accepted or rejected for credit. If you are applying for a large loan and you have a below-average credit score, the lender you’re applying with might determine that you’re too risky of a borrower and reject your application.

A good credit score, on the other hand, could boost your application. If you have a strong credit history, then a lender might look at your application more favourably and approve your loan application.

This is one of the reasons why your credit score is important.

Interest rates

The interest rates you’re charged when you take out credit can end up costing you a lot over the lifetime of the credit. That’s why it’s a good idea to try and find loans, credit cards and other credit products with lower interest rates.

However, whether you can access low-interest-rate products can be heavily dependent on your credit score. Why is this? Lenders and financial institutions use interest rates as a way of protecting themselves against risk.

If you are deemed to be a risky borrower, then you will likely only be offered products with high-interest rates. That way, they get more money out of you quicker, so if you default on a repayment, they could already have a decent portion of the money they lent to you repaid.

This is another reason why your credit score is important – it can determine what products you’re offered and, if you have a good credit score, save you a lot of money in the long term.

Borrowing limit

Your credit score can also affect how much you can borrow. As with most things, it all boils down to risk. The bigger the loan, the bigger the risk could be for the lender should you default.

If you have a below-average credit score, then a lender might decide that it’s not willing to offer you a high borrowing limit and reject your application or only offer you products with lower borrowing limits.

However, if you had a good or higher credit score, then a lender could be willing to lend you larger amounts because you’re seen as less of a risk. This is how your credit score can influence how much you’re able to borrow.

What other factors do lenders look at?

It’s important to point out that your credit score is not the only factor that banks and lenders use to determine whether to lend you money. There are a range of factors they consider when making this decision. Nonetheless, your credit score is an important component of their decision.

Here’s what else they will likely consider:

Your bank statements – credit providers will typically ask for your bank statements from the past three months. This way they can get an insight into your spending habits and savings so they can see if you are responsible with your money.
Employment status and income – companies will want to ensure that you have reliable employment. Why? Because reliable employment infers that you are and will continue to receive regular income.
Government benefits – if you rely too much on government benefits then companies might not be willing to lend you money.
Gambling – do you gamble a lot? If so, this could be a red flag for lenders.

What is a good credit score?

A good credit score varies among the three CRAs. This is because they have different scales to rank your scores. Equifax measures your credit score on a scale from 0 – 1,200, Equifax, on the other hand, uses a scale of 0 – 1,000.

Here’s how they categorise your credit score:

Source: Equifax and Experian

How can you improve your credit score?

There are many ways you can improve your credit score. Here’s a quick breakdown to get you started:

1. Space out your credit applications

Each time you apply for credit, the company you have applied with will check your credit score. This is known as a hard enquiry and it lowers your credit score. Therefore, it’s a good idea to space out your credit applications.

Instead of applying for multiple loans and types of credit at once, you could instead do your research and make sure you meet the criteria before applying. You could also just make one application and wait and see if you are approved before going on to apply for other credit.

2. Make your repayments on time

Your repayment history contributes to a good chunk of your credit score. If you can show that you can make your repayments on time whenever you take on credit, then this will reflect positively on your credit report and boost your credit score.

On the flip side, if you miss your credit repayments frequently, then these will be listed as defaults on your credit report. Each time you default it will drag down your credit score. Not only that, but defaults stay on your credit report for up to five years.

This means each time you apply for credit in the next five years, every company you apply with will be able to see that you have previously defaulted on a payment. This will put you in the higher-risk category.

3. Check your credit report frequently

1 in 5 credit reports have some kind of mistake on them. This mistake could be an administration error, or it could be an indication that you’ve been a victim of identity theft.

Either way, mistakes in your credit report can harm your credit rating. That’s why it’s important to check your credit report frequently. That way you can identify a mistake early on and take the steps to remove the mistake.

4. Be consistent

Negative entries remain on your credit report for years. That’s why it’s important to be consistent with your good credit behaviour. One mistake can stay on your report for five years or more, and that mistake can affect your credit applications during this time. That’s why consistent positive credit behaviour can improve your credit score.

The verdict: Why is your credit score important?

To sum everything up, here’s why your credit score is important:

It could be the difference between you being accepted and rejected for credit;
It can determine your borrowing capacity;
It can affect the interest rates you’re charged (and either save or cost you money in the long term);
It can impact what utilities and phone plans you can access.

June 21, 2021September 7, 2021

Should You Pay Off Your Credit Card or Personal Loan First?

Do you currently have credit card debt as well as a personal loan? You might be wondering what’s the right course of action: should you pay off your credit card or personal loan first? Tippla has put together this helpful guide to allow you to make an informed decision.

Learning the differences between debt

When you’re trying to decide which debt you should pay off first, it’s important to understand the differences between debt. Your credit card debt and personal loan will likely have different interest rates, terms and conditions.

With this in mind, it’s important to understand the differences between the two.

Interest rates

When it comes to deciding what debt to pay off first, it’s a good idea to compare the interest rates between the two. Typically, credit cards charge higher interest rates than personal loans do.

Annual Percentage Rate

The Annual Percentage Rate (APR) is the total amount of interest you will pay each year, before compound interest. The APR is represented as a percentage of the balance. The APR doesn’t include fees, such as account opening and maintenance fees.

For a credit card, say you have an APR of 10%, you will pay approximately $100 annually for each $1,000 borrowed. However, credit cards can have more than one APR. They can have one for purchases, one for cash advances and one that is charged when you make late payments.

Fees

Both credit cards and personal loans have fees associated with them. When considering which debt to pay off first, you should also consider the different fees you could be charged if you don’t pay off your debt.

Credit card fees

For credit cards, the most common fees include:

Annual fees – the majority of credit cards come with an annual fee which you’ll be charged each year. The cost of this fee will vary depending on which credit card you have.
Interest – You will be charged interest when you carry a balance, ie. when you don’t pay off your credit card debt for the month. The amount of interest you’ll be charged will depend on your card.
Cash advance fee – When it comes to credit cards, a cash advance is when you withdraw money from an ATM with your credit card or buy foreign currency. When you do this you will generally be charged a cash advance fee.
Late payment fee – At the end of each month you’ll receive your bill for how much you’ve spent on your credit card. If you don’t pay at least the minimum amount by the due date you’ll likely be charged a late payment fee.
International transaction fee – If you use your card overseas or make a purchase online with an international merchant, you will likely be charged a fee.

Personal loan fees

For personal loans, the most common fees include:

Establishment fees – This fee is charged when you take out a personal loan. It is charged to the borrower to cover the establishment of the loan.
Ongoing monthly fees – Some lenders might charge ongoing monthly fees, such as account management fees.
Late payment fees – Similar to credit cards, if you miss a loan payment, then you could be charged a late payment fee.
Early repayment fee – Some personal loans don’t allow you to repay them earlier than the set term. This is because, if you pay off your loan earlier, then you save money in interest. To offset this potential loss, lenders might charge an early repayment fee.

Comparison rate

When you look for personal loans, you will likely see two rates attached to the loan – the interest rate and the comparison rate. The comparison rate is the combination of the interest rate and most of the fees and charges that you will incur if you take on this loan. The comparison rate is a more accurate representation of how much extra you’ll be paying on top of the loan.

How to pay off your debt

When it comes to paying off your debt, there are two main methods people tend to use. These are the snowball and the avalanche system. Let’s take a look at them both.

Snowball system

The snowball system is when you organise all of your debts from the largest to the smallest amount. Once you have organised your debts like this, the snowball method dictates that you make the minimum repayments for all of your larger debts, and focus your attention on your smallest debt.

As part of the snowball method, you aim to pay off your smallest debt as quickly and comfortably as possible. To achieve this, you could pay more than the minimum amount. If you have spare cash, then you could put it straight into repaying this loan.

Once your smallest debt is repaid, then you will move onto the second smallest debt. This cycle would continue until your largest debt is paid off.

Avalanche system

Similar to the snowball system, you approach the avalanche system by organising all of your debts. However, with this method, you rank them from the highest interest rate to the lowest.

Once you have ranked your debts, the avalanche method dictates that you make the minimum repayments towards your debts with the lowest interest rate, and increase the amount you pay for your highest-interest debt.

This method is particularly beneficial if you want to save money because paying off interest can add up quickly.

You could also try debt consolidation to get on top of your credit card debt and personal loan.

Should You Pay Off Your Credit Card or Personal Loan First?

Let’s sum up all of the information and points we’ve discussed in this article. Should you pay off your credit card or personal loan first? Here are the main things you should consider:

The interest rate – which one is costing you the most in interest?
Fees – which one is costing you the most in fees. Do the fees outweigh the interest you are paying?
What can you afford to pay off?
Which method best suits your lifestyle – the snowball or avalanche method?

Most publications recommend that you pay off the debt which is charging you the most in interest. However, this might not be the best approach for every situation. If you are unsure of what’s the best course of action for you contact a free financial counsellor. They can provide you with advice based on your circumstances.

June 15, 2021

What’s The Difference Between Visa and Mastercard?

Visa and Mastercard are household names, recognised across the world. But do you know what’s the difference between Visa and Mastercard? If you don’t, then be sure to read on, we’ve got the answers you seek!

What are Visa and Mastercard?

Visa and Mastercard are both financial services companies that facilitate electronic payments across the world. They’re one of the big four companies that dominate the industry, joined by American Express and Discover.

Both Visa and Mastercard don’t provide physical cards nor do they extend credit to individuals, instead, they have partnered with a range of banks and financial institutions to offer their services. The two companies provide the largest range of products spanning credit, debit and prepaid options.

So what does this mean? Because the two companies are just digital payment platforms, they have minimal influence over the card products offered with their logo on them. For example, they don’t determine the interest consumers are charges, credit card fees, rewards points, and other particulars of the card. These are determined by the banks and financial institutions offering these cards.

About Visa

Based in America, Visa Inc. (NYSE: V) facilitates electronic funds transfers throughout the world. This is most commonly achieved via Visa-branded credit, debit and prepaid cards.

Because Visa doesn’t provide the actual cards, they don’t make money on the interest and fees connected to their cards. Instead, they make the bulk of their profit from charging banks and financial institutions a fee for using their payment network.

About Mastercard

Mastercard Inc. (NYSE: MA) is also an American-based company. It is the second-largest payment network, behind Visa. The company’s primary source of revenue comes from the fees it charges.

As is the case with Visa, Mastercard makes the bulk of its money from charging its clients a fee to use its electronic payment network. The company doesn’t control the fees and interest associated with its cards.

What’s the situation in Australia?

Like most countries, Visa and Mastercard dominate the electronic payments market in Australia. According to Statista.com, in June 2020, the two companies were responsible for 84.7% of the value of all Australian credit card payments. Furthermore, over the past five years, they have continued to increase their market share.

Credit cards in Australia

Although Visa and Mastercard dominate the electronic payments market in Australia, what does that market actually look like? According to Finder, there were 13,432,262 credit cards in circulation as of March 2021. Together, these cards netted a national debt accruing interest of $20.5 billion.

As for debit cards, for the same period, there were 35,279,958 in circulation. The average debit card purchase was $46, and on average, debit card users made 23 purchases per month.

What’s the difference between Visa and Mastercard?

So now you know what the two companies are and their presence in Australia, let’s get stuck into discovering what’s the difference between Visa and Mastercard.

The main difference between the two brands is the payment network that the company operates on. Visa and Mastercard both have their own separate payment networks. Visa cards won’t work on Mastercard’s payment network. The same goes for the other way around.

Aside from this main difference, there aren’t many other variations between the two payment networks, especially from a consumer’s perspective. Any other differences come from the specific card you have.

Because both companies partner with a range of banks, not all Mastercard cards are the same, nor are all Visa cards the same. They vary depending on the card issuer. Therefore, you might find differences between the types of rewards offered, the interest rates of individual cards, and the specific terms and conditions.

Alternatives to Visa and Mastercard

Even though Visa and Mastercard clearly lead the pack when it comes to electronic payments, there are two other large players in the market – American Express and Diners Club. Let’s jump in to see how these alternatives are different and what benefits they might offer.

American Express

Similar to Visa and Mastercard, American Express (commonly referred to as Amex) operates its own card network where it processes electronic payments. Unlike its two largest competitors, American Express doesn’t just process payments, it also issues credit and charge cards. Furthermore, American Express processes its own cards, as well as cards from other issuers on its card network.

What are the perks of American Express? Generally speaking, Amex offers better rewards than the other two companies. These range from frequent flyer points, membership rewards, dining perks and more. This is one of the main appeals of American Express cards.

The downsides of Amex is that they are known for charging higher credit card processing fees. Because of this, some merchants don’t accept American Express. Therefore, as a consumer, there are fewer places where you can use your Amex card.

Diners Club

Similar to American Express, Diners Club isn’t just a payment system, it also issues cards directly to the consumer. Furthermore, the company also finances payments and processes the transfers. Visa and Mastercard make most of their money from charging banks and financial institutions a fee for using their payment networks, Diners Club makes most of its money through the interest charged and fees.

What are the perks of a Diners club? Similar to Amex, the card offers different rewards than Visa and Mastercard. If these benefits align with your lifestyle, ie. If you travel a lot for work, then a Diners Club card could be beneficial for you.

The benefits include free airport lounge access, travel insurance and purchase protection, retail perks, and because the company has partnered with Mastercard to improve its accessibility, users can also access Mastercard perks.

This means, unlike American Express, Diners Club is accepted everywhere that Mastercard is accepted. Nonetheless, like Amex, Diners Clubs cards generally charge higher interest rates, as this is one of their biggest sources of revenue.

The verdict: what’s the difference between Visa and Mastercard?

To sum it up, what’s the difference between Visa and Mastercard? Overall, there is very little difference between the two. They both serve an identical purpose, and both have a large coverage of the global payments network.

From a consumer’s perspective, there isn’t any notable difference. The real variance comes from the individual cards but those differences are dictated by the card issuer, ie. the bank, not Visa or Mastercard themselves.

June 8, 2021

Can You Buy a House Without a Credit Score?

Australia’s property market is hot right now, with lots of people flocking to the real estate market. But can you buy a house without a credit score? Tippla has provided you with everything you need to know below.

Buying a house in Australia

Many Australians are currently entering the property market, either to buy their first home, a new home or investment property. With household savings peaking during COVID-19, and the Australian Government providing a range of stimulus packages for the property market, many Aussies feel like now is the time to buy.

When you’re looking to buy a house, many people need to do so with the help of a mortgage – a loan that is provided by the bank or a similar financial institution. According to the Australia Bureau of Statistics (ABS), as of October 2020, the average mortgage in Australia was $453,133.

Unsurprisingly, residents of New South Wales on average have the largest mortgages on average. Following NSW is Victoria and then South Australia.

Where can you apply for a mortgage?

You might be surprised to learn that it’s not just banks that offer home loans. In Australia, there are three main types of financial institutions where you can apply for a mortgage. The first of these three, is, of course, banks.

However, you can also apply for a home loan with mutuals, otherwise known as “member-owned” lenders. These range from building societies, credit unions and member-owned banks.

Furthermore, you can also apply for mortgages with non-bank lenders, which are privately owned institutions. This type of lender is neither a bank nor mutuals, as they don’t hold a banking licence.

What do lenders consider when you apply for a mortgage?

When applying for a mortgage, financial institutions will take a number of factors into consideration. This includes your credit score, salary, length of employment, spending habits and more.

Here are some of the most common home loan requirements:

Credit score (the higher the better);
Deposit (at least 5%);
A stable income;
Personal ID, such as Driver’s Licence, Passport and similar documents;
Stable financial position;
Bank statements and payslips.

All of these factors and more give the institution you’re applying to a good overview of your financial situation. It allows them to judge how risky of a borrower you are, and make their decision accordingly.

Why do you need a credit score for buying a house?

Your credit score is a numerical representation of your creditworthiness, AKA, how reliable of a borrower you are. Typically, if you have a high credit score, then you are perceived to be less of a risk. Therefore, you’re more likely to be approved for finance.

Your credit score is based on your credit report. Your credit report provides an overview of your credit history. It allows lenders to see how responsible you have been with your debt.

Because of this, not having a credit score and credit report could be viewed as a red flag by lenders. It gives them one less measurement to determine how big of a risk you are.

As a result, you might be charged a higher interest rate, which can cost you in the long run, or your application could be rejected. Having a good credit score could improve your chances of being approved for a mortgage.

How to buy a house without a credit score

Whilst having a credit score, especially a good credit score, can help your home loan application, you can still get a mortgage without a credit score. There are a number of things you can do to overcome this obstacle.

However, it is worth pointing out that if you are applying for a mortgage without a credit score, you might have access to fewer loan options, only be offered loans with higher interest rates, and less desirable conditions. Furthermore, because of responsible lending standards, you might only be able to apply for a smaller loan amount.

Prove you’re in a strong financial position

One of the main focuses for lenders is checking whether potential borrowers are in a strong financial position. If you can prove that you’re in a strong financial position, then this could go a long way in helping your application.

So how can you do this? If you can show that you have a full-time stable job, a strong income, you can save money on a monthly basis, and show that you don’t have a history of dishonour fees and defaults, then these can all help your case.

Nonetheless, it is important to keep in mind that if you don’t have a credit score, then you’re starting at a disadvantage.

Here is a quick overview of some of the potential downsides of buying a house without a credit score:

Limited choices of lenders;
Higher interest rates;
Smaller borrowing limit;
Stricter loan terms and conditions.

How to build a credit history from scratch

If you’re thinking about buying a house but you don’t have a credit score, you could consider trying to build a credit history before applying for a mortgage. We’ve put together a few tips on how to build a credit history from scratch.

Open an Australian bank account

If you don’t already have your own bank account, then this could be a good place to start. Having a bank account could help you apply for credit later on. So whilst opening a bank account won’t immediately help you create a credit history, it is a good first step.

Bank accounts are also important when applying for finance. This allows lenders to see your spending habits and how you manage your money. If you are responsible with your spending, then this could go a long way for your application.

Add your name to your utilities

If you are living out of home and your name isn’t on your utility bills, it might be time to change that. Your utility bills are a form of credit. If your name is on the bill, then each payment you make on your bill goes towards building your credit score.

Apply for a credit card

One way you can build your credit history is by applying for a credit card. If you don’t have a credit history, your choices are more limited than if you did have a credit score. Nonetheless, there are options, as banks and financial institutions will take other factors into account.

If you are a tertiary student studying at either university, TAFE, VET or an apprenticeship, then you could be eligible for a student credit card without a credit history. However, it’s a good idea to compare your options beforehand.

If you’re not a student, there are still other options. You could, for instance, apply for a secured credit card. Similar to a secured personal loan, a secured credit card is when you have a cash deposit in your bank account that is the same amount as your credit limit. That way, it is guaranteed to be paid.

Proactively provide information to credit bureaus

If you don’t have any credit, then credit bureaus won’t have any information on you. One way you can overcome this is by reaching out to provide your information. This could be in the form of sending a document to prove your identity and address. However, it’s important to update your information when necessary – such as your address, so that you don’t end up with multiple files with different credit information.

Can I buy a house without a credit score?

To sum it all up, simply put, whilst you can buy a house without a credit score, it’s not necessarily your best option. If you don’t have a credit score, you might have access to fewer loan options. Not only that but the loans that you are offered might not be as good, as you are deemed a riskier borrower. This could mean higher interest rates, lower borrowing limit, and other fees.

June 2, 2021September 7, 2021

Is Afterpay Bad For My Credit Score? Here’s a Quick Overview

With Buy Now Pay Later (BNPL) platforms, especially Afterpay, becoming an increasingly popular payment option, we’re exploring the potential negative effects of Afterpay and answering the question “is Afterpay bad for my credit score?”. Find out the answer below.

What is Buy Now Pay Later?

As the name suggests, BNPL platforms allow customers to buy an item now and pay it off later, typically in fortnightly instalments. These type of platforms are useful for people who want to make a big purchase but they might not be able to afford the full amount upfront. It gives them the opportunity to space out the cost over multiple pay periods.

BNPL platforms are similar to the layby system used by many retail stores. However, the difference with BNPL platforms is that they generally pay the retailer for the goods upfront, so the customer can receive them instantly, and then the customer pays the BNPL platform back.

Some of the most common BNPL platforms are Afterpay, Klarna, Zip Co (Zip Pay and Zip Money), Splitit, Sezzle and more.

Buy Now Pay Later in Australia

BNPL platforms have really taken off in Australia, with Afterpay at the forefront of the movement. According to a recent report released by the Australian Securities and Investments Commission (ASIC), the total amount of credit extended under BNPL arrangements almost doubled from the 2017–18 financial year to the 2018–19 financial year.

Specifically, the November 2020 report outlined that as of June 2019, there were more than 6.1 million open BNPL accounts. This represents up to 30% of the Australian adult population.

Not only are a range of new competitors entering into the Australian landscape, but established licensed credit providers have started to offer a BNPL arrangement or alternative. This includes some of the largest banks in Australia – Commonwealth Bank of Australia, National Australia Bank (NAB) and Citigroup.

How does Buy Now Pay Later work?

Say you want a dress for $400, an example of using a BNPL platform is you’d only have to make an initial payment of $100, and over the next 6 weeks, each fortnight you would need to make another payment of $100 until the whole amount has been paid off.

Many retailers now offer Afterpay, or similar BNPL platforms as a method of payment, as an alternative to paying with cash, debit or credit. Typically, all you need is an account via the app or website to make a transaction. This will be connected to a card or bank account, and the payments are commonly deducted automatically. You can also set up an account when you’re at the retailer, and once you’ve provided all your details, you will often get approval within seconds.

BNPL are similar to a loan, although they generally don’t come with interest, however, there can be fees associated with this kind of payment method, including late fees, overdraft fees from your bank, and interest if your account is connected to a credit card.

What is Afterpay?

Afterpay is a company established here in Australia in 2015, which operates in Australia, Canada, the United Kingdom, the United States and New Zealand. It is one of the leading Buy Now Pay Later (BNPL) platforms, allowing shoppers to pay for items in instalments, instead of having to pay the full amount upfront.

What are the risks of Afterpay and BNPL?

Afterpay allows you to make interest-free instalment payments for your purchases. According to its website, you’ll only incur fees if your payments are late. Another perk of Afterpay is an “instant approval decision”, where you’re notified whether you’re approved within seconds.

Whilst this all sounds great, are there risks associated with Afterpay? The simple answer is yes, so let’s take a closer look.

1. Afterpay can encourage impulse spending

Afterpay can be a great tool that allows customers to make larger purchases and break down the payments into more affordable instalments. However, one of the downsides of Afterpay and similar BNPL platforms, is that it can encourage impulse spending.

In fact, BNPL arrangements can actually make us spend more. Mel Browne, Author and Financial Wellness Advocate outlined the dangers of using Afterpay and similar services. As she outlined, the process of using cash 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.

Specifically, Browne argues that although there are dangers with credit cards, the risks are even greater with BNPL. She explains it like this: say you make a purchase of $100. This will be spread over 4 payments of $25. Your brain is likely to process this as only $25 – not $100.

Therefore, your brain registers less pain, and you’ll likely end up spending more. This could then lead to you overspending and struggling to make your repayments.

2. Late payment fees

Whilst Afterpay doesn’t charge interest, there are late fees, which can end up costing you. As highlighted above, because of the psychology behind BNPL, you’re more likely to overspend and struggle to make your repayments. Therefore, there is a real risk of incurring late fees.

This was highlighted in ASIC’s report, which showed that 21% of BNPL users who were surveyed missed a payment in the last 12 months. For the 2018-2019, financial year missed payment fee revenue for the BNPL providers in the review exceeded $43 million. This was up by 38% from the previous year.

“One in five consumers surveyed told us that in the last 12 months they had missed or were late paying other bills in order to make their buy now pay later payments on time,” ASIC said in its report. “These consumers missed paying things such as household bills (44%), credit card payments (32%), and home mortgage payments (22%).”

3. You can’t choose your payment schedule

Another downside of Afterpay and other BNPL platforms is that you typically can’t choose when your payments come out. This can increase your risk of overdraft, and incurring late fees from your bank.

4. It can harm your chances of being accepted for a loan

Lending requirements have become a lot more strict in recent years in Australia. Because of this, anecdotes have surfaced of people being rejected for home loans and other types of finance because they had Afterpay or they spent too much money on Uber Eats.

When it comes to Afterpay, lenders still look at this as a line of credit, because you’re borrowing money that you don’t have. If you rely on Afterpay for a lot of expenses, then this indicates to lenders that you’re not responsible with your finances.

Even if you don’t rely on Afterpay that much, lenders will still take a look at your BNPL spending habits, along with your other debts, to deem how risky of a borrower you are.

How does Afterpay affect my credit score?

Let’s get stuck into the next question – does Afterpay affect your credit score? Here’s what Afterpay has to say about it:

“Afterpay does not affect your credit score or credit rating. Your credit score can be impacted when somebody does a credit check on you or if you are reported as paying debts late; at Afterpay, we never do credit checks or report late payments.”

However, it is worth highlighting, that Afterpay’s Terms & Conditions do give it the authority to perform credit checks and also allow it to report “any negative activity on your Afterpay Account (including late payments, missed payments, defaults or chargebacks) to credit reporting agencies”.

So what does this mean? Basically, Afterpay doesn’t typically report your late payments or perform credit checks, but that doesn’t mean it won’t. That’s something to keep in mind when considering whether to start using Afterpay.

Other BNPL platforms, like Klarana, do perform a credit check when you use its services. Other platforms, like Zip, humm, Openpay and Payright all say they might perform a credit check, or that they reserve the right to perform a credit check, depending on the platform.

May 25, 2021September 7, 2021

What Are The Different Types of Credit Cards?

With so many options out there on the market, Tippla has put together a helpful guide on the different types of credit cards.

What is a credit card?

A credit card is a revolving line of credit that allows you to purchase goods and services. There are many similarities between a credit card and a loan – you have a set limit you can spend, and you need to pay it back.

Unlike a loan, the credit limit refreshes each month, and you need to repay the amount each month. If you want to avoid fees and interest, you’ll have to pay back the full amount each month.

Why choose a credit card?

There are several reasons why you might opt for a credit card. Here are five reasons:

1. Flexibility

Because your credit limit refreshes each month, that means you can have access to thousands of dollars each month. This can come in handy if you have unexpected expenses, want to make a big purchase, or use it for your daily spending.

However, it is worth remembering that whatever you spend, you have to pay back. Your credit card limit typically refreshes each month.

2. Building a credit history

Taking on a credit card can allow you to build a positive credit history. If you demonstrate each month that you can use your credit card effectively, and meet your repayments consistently, then this will look good on your credit report.

However, if you allow your credit card debt to get out of control, then it could have the opposite effect. If you miss your repayments, then this will be displayed as a default on your credit report. Defaults can seriously harm your credit score.

3. Rewards

There are many rewards associated with credit cards. When you spend money, you earn points, which can be redeemed for a range of items – frequent flyer points, cashback, or retail perks, the list goes on and on. If you fly a lot for work, then a rewards credit card might provide a nice bonus.

However, it’s important to point out that rewards cards often come with higher interest rates and fees. It’s important to weigh the pros and cons to see whether you will get a benefit from a rewards card.

4. Purchase protection

Many credit cards come with purchase protection. This can come in handy if you lose or damage a recent purchase. Typically, you can claim your lost or damaged item on your card’s insurance within 90 days from purchase.

5. Tracking your expenses

You can easily track your expenses when using a credit card. This can be particularly helpful for budgeting and trying to cut down on your monthly spending. With most credit cards, you can easily track your spending through your internet banking or monthly statements. Some banks will even sort your expenses into categories, such as utilities, groceries, eating out, and similar groups.

Different types of credit cards

Now you know some of the reasons why you might want to get a credit card, let’s dive into the different types of credit cards.

Low-interest credit cards	A low-interest credit card is a credit card that offers a lower interest rate than normal, which is typically 20%. Low-interest rate credit cards, however, often have an interest rate that’s 14% or lower. In addition to having a lower interest rate, these cards can also have no interest periods, typically up to 55 days. The downside of low-interest credit cards is that they generally come with more restrictions, fewer rewards, and a higher annual fee.
Balance transfer credit cards	A balance transfer credit card is when you transfer your outstanding debt from one credit card to your balance transfer credit card. The benefits of a balance transfer credit card are that they usually come with a low interest rate or even an interest-free period. This gives you the opportunity to repay your debt within the interest-free, or low-interest, period. If you can’t repay your debt within this period, then it might cost you more in the long run.
No annual fee credit card	As the name suggests, a no annual fee credit card is a credit card that doesn’t have an annual fee. There are typically two versions of this card. The first is when you never have to pay an annual fee for the life of the card. The second is when you don’t have to pay the annual fee for an introductory period, which usually spans 1-2 years. Because you’re not being charged an annual fee, this type of card often comes with a higher interest rate.
Rewards credit card	Rewards are a popular type of credit card, as they often give you some kind of reward simply for spending money. The reward is generally given in the form of points which you can use for things like – retail rewards, supermarket rewards, cashback deals, frequent flyer points, and petrol rewards. Like everything in life, nothing comes for free. Rewards credit cards typically come with higher annual fees and interest rates. It can also take a while to build up the points, and they can expire. That’s why it’s beneficial to read the conditions of the rewards and see if they are worth the extra fees and higher interest.
Cashback credit card	A cashback credit card is a type of rewards credit card. However, with this specific card type, you can get cash back when you make purchases. There’s a couple of ways this can happen, you might get a cash voucher or the money credited back to your account. Similar to rewards credit cards, cash back credit cards usually have higher interest rates and annual fees. Some cards can also cap how many cashback points you can earn.
Platinum or black credit card	Platinum or black credit cards are at the upper end of credit cards. They come with a range of benefits including exclusive dining and travel deals, as well as rewards points that don’t expire. You can get one of these cards if you’re 18 years or older and your salary exceeds $50,000 a year. The downside of these cards is the higher annual fees and interest rates.

Who provides credit cards?

Let’s tackle the next question – where can you get a credit card? Gone are the days when banks are the only institution that offers credit cards. Here is a range of companies and financial institutions that offer credit cards:

Australian and international banks;
Financial institutions,
Airlines, such as Qantas and Virgin;
Supermarket chains, such as Woolworths and Coles;
Visa and Mastercard;
eCommerce companies like Kogan;
Department stores, including David Jones.

What credit card is right for me?

In Australia, there are so many credit card options available for you to choose from. It can be overwhelming when trying to decide what credit card is the right fit for you. To help you on your journey, we have listed a couple of questions you should ask yourself when making your decision.

What will I be using the credit card for – day to day spending, to pay for bills, or to make big purchases every so often;
Will I be able to pay off my credit card in full each month?
Am I, at times, forgetful and not the best at sticking to a budget and therefore, likely to carry over a balance each month?
Do I travel a lot?
Do I exclusively do my grocery shopping at one brand – like Coles or Woolworths?
Do I need a credit card, and can I afford it? Do I already have a lot of debt?
Will a credit card help or harm my credit score?

Before you apply for a credit card

Taking on a credit card can be a big decision. Before applying for a credit card you should make sure that you can afford to make the repayments, that you understand how to use a credit card effectively, and you can handle your debt responsibly.

It is easy for credit card debt to spiral out of control, so you should do your research and budget before taking on the responsibility. If you are ever unsure, you can speak to a financial counsellor for free to see if taking on a credit card is the right financial choice for you.

May 18, 2021September 7, 2021

Is Debt Consolidation Right For You?

Is debt consolidation right for you? There are a few things you need to consider before opting for debt consolidation or refinancing. Tippla has provided you with an easy guide below.

What is debt consolidation?

Let’s start first with the most important question – what is debt consolidation? Put simply, it’s the process of using one loan to pay off multiple other loans. If you have more than one loan, then consolidating your debt, and rolling it into one consolidated loan, could sound like a good idea.

How does it work?

Let’s say you have three different credit cards of different amounts ($3,000, $5,000 and $8,000 for example). For each of these loans you will be paying separate interest rates, annual fees and your repayments will likely be at different times across the month.

If you want to consolidate your debt, you could instead take out a single personal loan, and use that to pay off the balance of your three credit cards, as well as outstanding interest and annual fees. Then you’ll only need to focus on repaying the single personal loan. That means you’ll only have one interest rate.

Generally speaking, the interest rate for personal loans is lower than that of credit cards. However, with credit cards, you typically only need to pay interest if you carry over a balance at the end of the month. With personal loans, you are often paying interest each month, regardless of how much you pay.

Different ways to consolidate debt

There are a few ways that you can consolidate your debt. Here are the three main ways:

You can combine all of your debt into a single personal loan;
If you’re wanting to consolidate your credit card debt, you can consolidate it using a balance transfer credit card;
If you’re wanting to consolidate your mortgage, you can do so with a home loan top-up or opt for refinancing.

Why would you consolidate your debt?

In what situation would you consolidate your debt? If you have multiple different loans or types of credit, then you might take out a debt consolidation loan to achieve the following:

Get a potentially lower interest rate;
Make your repayments easier and streamlined;
Have a clear timeline of when you’ll be debt-free.

Things to consider

Before taking out a debt consolidation loan, there are some things you should consider. We’ve listed the pros and cons below.

Pros

There are some pros to consolidating your debt. Here are a few:

Convenience

When you consolidate your debt, instead of having to keep track of multiple repayments, you will only need to worry about one. That means, less worry for you and less chance you might forget to repay your outstanding debt and risk harming your credit score.

Fixed rates and terms

When you take on a debt consolidation loan, you can get a loan with a fixed interest rate and term. That means you’ll know exactly how much you need to pay each month and when. This can make it much easier to budget for and could reduce the likelihood that you’d default on your loan.

However, it is worth pointing out here, that you shouldn’t take on a loan that you can’t afford to pay. Defaulting on your loan could result in you having to pay fees and a higher interest rate, which could cost you more. Plus, defaults can harm your credit score.

Lowering your monthly repayment

If you take on a longer loan term, then your payments will be spread across a longer period and therefore, your monthly repayments should be lower. However, the longer you take to repay your loan, the more interest you’ll have to pay. This could cost you more in the long run. It’s always important to weigh the short term benefits against the long-term cost to see if you’re saving money.

Cons

Here are some of the downsides of consolidating your debt:

You might end up paying more and accumulating more debt

When you’re considering debt consolidation, you should compare the interest rate for the new loan, as well as the fees and any other costs, against your current loans or credit cards. If your new loan is going to be more expensive than your existing credit, then it might not be worthwhile to consolidate your debt.

After all, the purpose of consolidating your debt is to try and reduce it. This is especially true if you have taken on a loan with a longer loan term, as you will likely be paying interest for the life of the loan.

It could damage your credit score

There are several ways in which taking on a debt consolidation loan could damage your credit score if you don’t use it properly. Namely, every time you apply for some kind of credit, whether it be a loan or credit card, a hard enquiry will appear on your credit report and lower your credit score, initially.

Furthermore, if you take on a debt consolidation loan and you’re not able to pay it back and you default on your repayments, then this will also hurt your credit score. That’s why it’s important to consider whether consolidating your debt is right for you.

Is debt consolidation right for you?

Unfortunately, the answer to the question “is debt consolidation right for you” completely depends on your financial situation. That’s why it’s important to weigh the pros and cons and make a decision that’s best for you.

If you’re not sure, here are some steps you can take first:

Reach out to a financial counsellor, they’re free, and they can provide you with advice tailored to your situation;
Reach out to your credit providers to see if they can change your repayments or extend your loans. The National Debt Helpline has some helpful information on how you can negotiate payment terms.
If you are wanting to consolidate your home loan, it could be worth chatting with your mortgage provider, especially if you are going through hardship. Alternatively, it could be beneficial to switch home loans altogether and find one with a lower interest rate and fewer fees.

May 11, 2021

5 Ways to Reduce Credit Card Fees

Whilst credit cards can be a useful tool, they often come with a range of different fees. Credit card fees can end up costing you a lot of money in the long run. That’s why we’ve put together this helpful guide on how to reduce credit card fees in 5 simple ways.

What is a credit card?

Before we dive into the ways you can reduce credit card fees – let’s start with the basics. What is a credit card? A credit card is a line of revolving credit at a set limit that refreshes periodically, generally each month.

You can use a credit card to make purchases, balance transfers and cash advances. When you take out a credit card, you do so with the condition that you pay back the money that you spent, plus any additional interest. At the very least, you’ll have to make the minimum repayment each month by the due date.

Different types of credit cards

There are many different types of credit cards which all come with their unique benefits and downfalls. One key rule to keep in mind – if you are getting some kind of benefit, such as rewards, low-interest rates or no annual fee, you are often paying for it in another way. This could be through extra fees or higher interest rates. That’s why it’s a good idea to weigh the pros and cons before deciding on which card is right for you.

Here are some of the most common types of credit cards:

Low-interest credit card – a low-interest credit card, is a card that offers a lower interest rate than normal. However, to offset the lower interest rate, these types of cards often come with a higher annual fee, more restrictions and fewer rewards.
Balance transfer credit card – A balance transfer credit card allows you to transfer your credit card debt from another credit card to this one. A balance transfer credit card usually comes with lower interest rates or even an interest-free period. This allows you to repay your debt and save paying interest on your other card. However, this card is only beneficial if you can pay it off within the low or interest-free period, otherwise, it could end up costing you more.
No annual fee credit card – like the name suggests, this kind of credit card doesn’t come with an annual fee, either for a set period or for the life of the card. However, you’ll usually be charged higher interest rates, which could cost you more in the long run.
Rewards credit card – This kind of credit card gives you some kind of reward when you make purchases, whether it’s frequent flyer points, retail rewards, supermarket rewards, cashback deals, and petrol rewards.

Common credit card fees

There are several different credit card fees that you’ll need to keep an eye out for. What fees you’ll be charged, and how much they’ll cost you, completely depend on your specific card. That’s why it’s important to read the terms and conditions carefully before applying for a credit card.

Here’s a breakdown of some of the most common credit card fees.

Annual Fees	Most credit cards come with an annual fee which you’ll be charged each year. The cost of this fee will vary depending on which credit card you have.
Interest	Just like an annual fee, most credit cards come with interest. You will be charged interest when you carry a balance (when you don’t completely pay off your credit card debt for the month). There are different types of interest rates. They might be called: purchase rate, cash advance rate, balance transfer rate or promotional interest rate.
Balance transfer fee	A balance transfer is when you move your existing debt onto a new account. This can allow you to get on top of your debt, but, you’ll generally be charged a fee to do so.
Cash advance fee	When you withdraw money from an ATM with your credit card or buy foreign currency – this is referred to as a cash advance. When you perform either of these actions you will generally be charged a cash advance fee.
Late payment fee	Your credit card limit typically refreshes each month. At the end of your monthly period, you’ll receive your bill for how much you’ve spent. With credit cards, you don’t have to repay the full amount, but you’ll pay at least the minimum amount by the due date to avoid late payment fees. If you don’t, then you’ll likely be charged a late payment fee.
International transaction fee	If you use your card overseas or make a purchase online with an international merchant, you will likely be charged a fee. An international transaction fee can also be called a foreign transaction fee or a currency conversion fee.

How to reduce credit card fees

Now that you’re armed with all of the information you need on types of credit cards and common fees, let’s get stuck into how to reduce credit card fees. Here are five things you could do.

1. Pay your card off in full before the due date

Each month, you will receive your credit card bill. If you don’t pay this off by the due date, you will be charged late fees and interest. If you pay the full amount off each month, not only will you avoid late fees, but you’ll also avoid having to pay interest on the amount carried over into the next month. This is a great way to reduce credit card fees.

Or, at least make your minimum repayment by the due date

If you can’t repay your credit card balance off in full each month, you should try and at least make your minimum repayment. Your minimum repayment is the lowest monthly repayment you can make without incurring late fees. The minimum monthly repayment is usually about 2 or 3% of the total amount you owe for the month.

By paying the minimum repayment by the due date, you won’t have to pay late fees. However, you’ll still accrue interest on what’s still owing, and this could cost you a lot in the long run.

Therefore, if you want to reduce credit cards fees, you could try and repay your balance off in full each month, or at the very least, make your minimum repayments. It is also worth highlighting that many credit cards, especially low-interest rate credit cards, will void the credit card offer or rewards system if you are late with a payment.

2. Opt for a low annual fee credit card

There are certain credit cards on the market that offer good deals for the annual fee. Some cards might offer a low annual fee and some might offer no annual fees either for a certain time or for the life of the card.

Whilst this is a good way to reduce credit card fees, it is important to highlight that many of these cards will offset the lower annual fee with higher interest rates. This could cost you more in the long run. That’s why it’s a good idea to weigh your options and see what’s the best decision for you.

3. Avoid using your credit card to make ATM withdrawals

When you use your credit card to withdraw money from an ATM, this is called a cash advance. Just like any other purchase you make with your credit card, you will need to pay this back. What’s more – most credit card providers charge a fee for cash advances. How much the fee is, depends on your specific card.

If you want to reduce credit card fees, you could do this by not using your credit card to withdraw money from an ATM. If you need to withdraw money from an ATM, you could use your debit card instead, which might not charge you any fees.

4. Don’t use your credit card for international transactions

If you want to avoid being charged a fee for international transactions, there are two ways you can go about this. The first is you can shop around and look for a credit card that doesn’t charge a fee for international transactions. Alternatively, you could avoid making foreign transactions on your card altogether. Either of these options could help you reduce credit card fees.

5. Do your research before applying for a credit card

The final tip to reduce credit card fees is to do your research before applying for a credit card. Think of why you want a credit card and then try and find the best one for your needs. You could compare interest rates, fees, and find one that best aligns with your needs.

May 4, 2021

Does a Personal Loan Harm My Credit Score?

There are many reasons you might want to take on a personal loan – an unexpected expense, an upcoming holiday, or even to cover a medical bill. But if you’re wondering “does a personal loan harm my credit score?”, Tippla has done the legwork for you! Below you’ll find the information you need to know.

What is a personal loan?

A personal loan is a type of credit that allows you to make big purchases or consolidate your debts. These types of loans are repaid with interest over a fixed term, ranging from months to years. You can apply for a personal loan from a bank, credit union, or online lender.

The reason for taking out a personal loan can vary. Here are some examples:

Consolidating debt;
Big purchases: car, holiday, wedding, renovations, medical, etc;
To cover unexpected expenses.

If you decide to apply for a personal loan, it can be overwhelming to see how many options are out there. It can be difficult to understand what’s the best loan for you. Here are some key factors to keep an eye out for when comparing loans:

Interest rate;
Repayment terms;
Borrowing limits (minimum and maximum amounts);
Fees;
Collateral requirements.

Types of personal loans

There are many options for personal loans. That’s why it’s important to understand your personal and financial situation so you can choose the best option for you. Here’s a breakdown of the two most common types of personal loans:

Secured loan: a secured personal loan is a loan guaranteed by an asset, such as a car, motorbike, or something similar. The asset acts as security and if you default on your loan, then you’re at risk of losing the asset.

Because of the extra security, secured personal loans are generally easier to obtain from a reputable lender. They typically come with lower interest rates and fees as there is less risk for the lender.

Unsecured loan: as the name suggests, an unsecured personal loan has no asset attached to the loan. Because of this, the lender is taking on more risk which means you’ll generally be charged higher fees and interest rates than a secured loan. This type of loan is good if you don’t have an asset, though you may have to convince the lender that you’re able to make the repayments through proof of income, and if this is your first loan, you may require a guarantor for security.

What is a credit score?

Before moving straight into discussing the question “does a personal loan harm my credit score”, let’s take a moment to talk about credit scores. Let’s start with the most important question – what is a credit score? A credit score is a number that ranges from 0 – 1,200.

A lot of people don’t know how credit scores are calculated. To put it simply, your rating is based on the information contained in your credit report. Your report considers factors such as your repayment history, your credit accounts and even how many times you have applied for credit.

A good credit score indicates to lenders that you have a high level of creditworthiness. The better your score, the more likely you will be approved for a loan and reap the benefits of a higher loan amount and/or lower rates. Your score falls somewhere on a five-point scale ranging from below average up to excellent.

Source: Equifax and Experian

Does a personal loan harm my credit score?

Unfortunately, there isn’t a simple answer to “does a personal loan harm my credit score”. Like any form of credit, a personal loan will affect your credit score. But how it affects your score depends on how you handle the personal loan.

When you first make an application for the loan, your credit score will be lowered. Whilst your credit rating will take a hit when applying for the loan, after this point, a personal loan can be beneficial for your score. When used responsibly, your credit score can improve when you take out a personal loan.

Let’s take a closer look at this.

Applications

When searching for the right personal loan you should try and minimise the number of applications you make. Why is this? When you apply for a personal loan, you are giving the company you’re applying to permission to check your credit report. When they check your credit report this is referred to as a hard enquiry. Hard enquiries harm your credit score, regardless of whether you are approved.

A large number of applications within a short period of time are not viewed positively. Not only will the multiple applications harm your credit score further, but future lenders may also assess your application and deem this proof of you being rejected previously, thus making you a risky borrower.

Instead, you could consider researching your options further and only make one application for the loan which best matches your criteria.

Repayments

If you fail to repay the loan, it will appear on your credit report as a default. This will negatively impact your credit score. Not only will this stay on your credit report for five years, but you may also lose the asset you used to secure the loan (if applicable) or run the risk of having to deal with debt collectors.

What to consider before taking on a personal loan

So we’ve covered the question of does a personal loan harm my credit score, but what about the factors you should consider before taking out a personal loan? Here are some things you should consider before applying for a loan.

Do you meet the loan requirements?

The first thing you can consider is whether you meet the requirements for a personal loan. The basic requirements of any loan are that you are over the age of 18, have a regular income, be a permanent Australian resident (or hold an acceptable non-resident visa), and can provide an overview of your current financial situation.

Check the terms and conditions

The next step you could take is to look into the finer details of your loan. The interest rate is the amount that the financial institution charges in addition to the money you’ve borrowed. Aiming to find the lowest interest rate means that you can focus on paying off your loan rather than extra interest.

On top of interest rates, you may also have fees associated with your loan. All loans have different associated fees; some to look out for include establishment, servicing, early repayment, early exit, insurance, and withdrawal fees.

How long is your loan term?

Another factor worth considering is the term of the loan. The length of your personal loan will determine the amount of interest you are charged over its life. Typically, the longer the loan, the lower the monthly repayments.

How will you pay off the loan?

When taking on a loan, it is important to know beforehand how you will pay off the loan. Whether you choose to opt for weekly, fortnightly, or monthly repayments – or even want to pay it off sooner than the term. Such elements are great starting points to consider before making any personal loan applications.

Effectively manage debt

As we’ve addressed in this article, the question “does a personal loan harm my credit score” isn’t a straightforward one. But if you can effectively manage your personal loan and your debt, then you could actually make your loan work for you.

Here are some easy steps you could take to effectively manage your debt:

Consistently make your repayments;
Don’t borrow more money than you can afford;
Consolidate your debt;
Take the time to look for the loan that offers the best value instead of creating multiple applications;
Consider making extra repayments if you can;
Seek expert advice if you encounter trouble.