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How to Report Credit Card Fraud: Protect Yourself and Your Credit Score

report credit card fraud

Fraudsters are adopting more sophisticated methods to steal your card details. Tippla has put together a guide on how to protect yourself and your finances, and, if the worst should happen, report credit card fraud.

report credit card fraud

As technology advances, you don’t need to only worry about someone stealing your credit card out of your bag. But also that your details might be stolen online. So how can you protect yourself from and report credit card fraud if you do fall victim?

What is credit card fraud?

Let’s start by going over what is credit card fraud. As outlined by Experian, credit card fraud is “when someone uses your credit card or credit account to make a purchase you didn’t authorize”.

This could happen in many ways. A thief could steal your physical credit card and use it to make purchases. Alternatively, scammers could steal your details online, such as your credit card number, PIN and security code. With these details, they can make purchases online without having your physical card. 

Types of credit card fraud

Credit card fraud comes in many shapes and sizes. Sometimes the fraud is physical, for example, they steal your credit card from your wallet, or the scam is online. This is referred to as card-not-present (CNP) fraud.

Here’s an overview of the different types of credit card fraud:

Credit card theft – when someone steals your credit card from your wallet, bag, car – wherever you keep it;

Using lost or stolen cards – say you dropped your credit card somewhere, and an opportunist picks it up. They proceed to use your card as if it was their own instead of reporting it to police;

Counterfeit cards – counterfeit credit cards are physical cards that were created with real account information that has been stolen from victims using a device called a “skimmer”. Often, the victims still have their real cards, so they’re not aware that their details have been stolen.

Intercepting and using mailed cards – when someone orders a new credit card and it’s sent to their address in the mail, fraudsters will steal this mail and use the card. Whilst credit card companies do their best to protect the cards during transit, they can be stolen from your mailbox.

Account takeover – as the name implies, account take over is when someone takes over your account. They could do this by getting your address and basic information and learn some of your security questions, such as your mother’s maiden name. Once they have this information, they’ll call up your bank or provider and change the account details. They might change the address, so a new card is sent to their address and not your own.

Fraudulent applications – using your details, such as your name, date of birth and address to apply for credit cards in your name.

CNP – card-not-present fraud is when scammers steal your details when you pay for something online. For this type of fraud, they only need basic information such as your credit card number and name to execute the fraud.

Credit card fraud in Australia

Although credit card fraud is an issue in Australia, there is an encouraging declining trend. According to figures released by the industry self-regulatory body Australian Payments Network (AusPayNet), fraud on payment card transactions dropped by 15.4% to $447.2 million for the 12 months to the 30th of June 2020. This continued the declining trend recorded in the previous year.

CNP fraud, which is when someone’s credit card details are stolen online and used in mainly online transactions, fell by 14.0% year-on-year down to $392.4 million.

Even though these figures are encouraging, that’s not to say that credit card fraud isn’t a real threat. 

Credit card fraud vs identity theft

Identity theft is a type of fraud where someone uses another’s identity to either steal money or gain some kind of benefit. Credit card fraud is a type of identity theft. This is because the scammers are using your credit card details to make purchases without your consent.

As outlined by the Australian Competition and Consumer Commission’s (ACCC) scam statistics website Scamwatch, common methods of identity theft include phishing, hacking, remote access scams, malware and ransomware, fake online profiles, document theft and data breaches.

How to tell if you’re a victim of credit card fraud

The Australian Federal Police outlines the following ways you can identify if you have been a victim of identity theft:

  • Items have appeared on your bank or credit card statements that you don’t recognise;
  • You applied for a government benefit but are told that you are already claiming;
  • You receive bills, invoices or receipts addressed to you for goods or services you haven’t asked for;
  • You have been refused a financial service, such as a credit card or a loan, despite having a good credit history;
  • A mobile phone contract has been set up in your name without your knowledge;
  • You have received letters from solicitors or debt collectors for debts that aren’t yours.

How to report credit card fraud

Credit card fraud can happen even when your card is still in your wallet. Therefore, it’s a good idea to monitor your credit account to see if there are any suspicious transactions.

If you discover there are purchases on your credit account that you haven’t authorised, then you might be a victim to credit card fraud. If that’s the case, here’s what you should do:

Alert your credit card company

The first thing you should do if you discover you’ve been subject to credit card fraud is to immediately contact the credit card company and alert them to the fraudulent activity. They should put a hold on your account so the fraudsters can’t make any more purchases, and reimburse you the money. 

Change your online passwords and PINs

Once you have alerted your credit card company or bank to the fraud, you should log into your account and change your online banking password and PIN. Password managers can help you create complex passwords that are hard for fraudsters to crack. You might want to consider using one of these to help create a strong password and prevent further fraud.

Check your credit report

Your credit report can be a valuable resource to help you detect credit card fraud and identity theft. Your credit report outlines all of the different credit accounts you have. If you check your report and see that you have credit accounts open that you never authorised, then you might be a victim of credit fraud.

If you have been a victim of fraud, then you should contact the three credit reporting agencies in Australia. These are Equifax, Experian and illion. You should report the fraud to each of these credit bureaus. You can ask them to place a ban on your consumer credit information.

Placing a ban on your consumer credit information can help prevent fraudsters opening accounts in your name. During the time the ban is in place, credit providers won’t be able to view your credit report without your written permission. Credit providers can’t open up an account without viewing your report.

You can also add a fraud alert to your credit report with each of the agencies. This means you will receive a notification when certain changes happen to your credit file.

Report credit card fraud to the police

If you are a victim of fraud, you should report credit card fraud to the police. If your details have been stolen online, you can report the fraud via ReportCyber on their website here. You can also call the following number: 1300 292 371.

How to protect yourself from credit card fraud

As the saying goes, prevention is better than cure. Here are some things you could do to protect yourself from falling victim to credit card fraud.

Keep your wallet or purse secure at all times

Whilst online scams are a real threat, thieves can still steal your credit card from out of your bag. When out in public, you should keep your wallet or purse secure at all times to stop it from being stolen.

Shred financial documents before putting them in the bin

The Australian Federal Police recommends shredding any personal or financial papers before you throw them away, so people can’t access your details. Alternatively, you should keep them in a secure place if you want to retain them.

Be careful when using your card

When you’re out in public, you should always cover the keypad at ATMs, to stop strangers from viewing your pin. The same goes for when you’re entering your pin on EFTPOS terminals.

You should also be aware of your surroundings and keep an eye out for anyone trying to watch you. Sometimes, scammers might try and attach technology to the ATM or EFTPOS terminal to scan your details. You should look out for any strange or loose fixtures attached.

For extra protection, you can ask your bank or financial institution for a credit or debit card with an embedded microchip. These are more secure than cards that only have magnetic stripes.

Be mindful of where you provide your details

When you’re shopping online, you should be mindful of where you provide your details. You should only buy from reputable companies or from ones whose security measures you can verify.

One method you can do is look at the company’s web address. With the https the “s” indicates that the site is secure.

On the other side of this, if you’re using a public computer, such as an internet cafe, or using an unsecured wireless connection (AKA a hotspot), avoid doing your internet banking or making payments.

Furthermore, you should be cautious of who you provide your personal and financial information to – both online and offline. 

How can credit card fraud hurt your credit score?

Your credit report details all of your current credit accounts, as well as any credit you’ve had over the past two years. The impact fraud will have on your credit score, however, depends on what the scammer does with your details.

If they max out your credit card, this will hurt your credit score, as it indicates that you’re not responsible with your finances. If they make multiple applications in your name, this could also harm your rating.

However, it is important to highlight that although credit card fraud can hurt your credit score initially, once you alert the credit reporting agencies to the fraud, they will remove the fraudulent accounts or transactions and your credit score will revert to what it was.

Keep a watchful eye

Although credit card fraud might be on the decline in Australia, it remains a real threat for Aussies across the country. Even if you do all of the right things you could still become a victim to fraud. Constantly checking your accounts, prioritising your online security and knowing how to report credit card fraud could help you reduce the damage if your details are stolen.

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

rejected for a loan

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

rejected for a loan

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

What is a credit score?

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

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

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

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

How to check your credit score

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

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

What is a good credit score in Australia?

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

Source: Equifax and Experian

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

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

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

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

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

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

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

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

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

Check your credit report for mistakes

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

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

Improve your credit score

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

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

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

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

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

How to fix your credit score

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

Space out your credit applications

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

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

Make your repayments on time

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

Keep your credit accounts open

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

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

What looks bad on a credit report

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

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

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

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

Use your credit score to get a loan

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

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

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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.