Everything you need to know about credit scores
Your credit score can impact your finances in more ways than you might realise. Did you know that having poor credit might impede your ability to get a job? The more knowledge you have about credit scores and how they work, the more capable you’ll be to build yours up.
WHAT IS A CREDIT SCORE?
Your credit score is a 3-digit number that represents the status of your credit report.
Generally, the higher your credit score, the higher the likelihood that you will demonstrate
good payment behaviour.
Lenders use credit scores as one factor when making certain decisions.
There’s no quick fix for a credit score that isn’t excellent but with the right tools, education, and habits, you can get on the right track.
HOW ARE CREDIT SCORES CALCULATED?
- The length of your credit history
- Your payment history
- The number of accounts you have
- The types of accounts
- Your used credit vs. your available credit
CHECKING YOUR CREDIT SCORE?
Experian, Equifax, Transunion
The law requires each of the three nationwide credit reporting agencies (Equifax, Experian
and TransUnion) to give you a free credit report every 12 months if you ask for it.
WHAT DOESN’T AFFECT YOUR CREDIT SCORE
Your credit report shows how you’ve borrowed money in the past, not how much wealth you have.
YOUR SAVINGS AND INVESTMENTS
Your credit report is about borrowing, not saving, therefore your savings and investments don’t appear on your report.
YOUR DEBIT CARD
Your debit card activity is not reported to the credit bureaus, so just because you’re using plastic at your favourite shops doesn’t mean you’re building credit.
RECEIVING GOVERNMENT BENEFITS
Whether it’s welfare or disability, the fact that you are receiving government assistance is not noted on your credit reports and is not factored into your credit scores.
If you get sent to jail your credit scores are not affected. However, that does not mean any legal activity won’t appear e.g bankruptcies, overdue child support payments.
BENEFITS OF A GOOD CREDIT SCORE
- Mortgage and rents
- Getting loans
- Lower interest rates
- Better insurance rates
CREDIT REPORT MYTHS
HAVING A POOR CREDIT HISTORY WILL PUT YOU ON A CREDIT BLACKLIST
It doesn’t actually exist. There’s no single ‘score’ that lenders use when deciding whether to let people borrow.
CHECKING YOUR CREDIT REPORT WILL DAMAGE YOUR CREDIT RATING
You’ll never be penalised for checking your credit report. In fact, it’s a very good idea to check your report on a regular basis.
YOUR CREDIT RATING IS AFFECTED BY THE FINANCIAL STATUS OF THOSE YOU LIVE WITH
Unless you have a ‘financial connection’ with someone through a joint mortgage, for example – your credit rating won’t be affected by anyone else’s details.
PREVIOUS OCCUPANTS OF YOUR ADDRESS AFFECT YOUR CREDIT SCORE
It makes no difference if the previous occupant of your home was a millionaire or bankrupt. Lenders are only interested in your financial details.
IT DOESN’T MATTER HOW MANY CREDIT ACCOUNTS YOU HAVE:
Lenders want to be sure that you can afford more credit, using a large number of credit accounts can indicate you are reliant on credit.
ITEMS IN YOUR CREDIT HISTORY STAY ON YOUR REPORT FOREVER:
Your credit report is designed to give lenders a picture of your recent and current financial position – they’re unlikely to be concerned about a missed payment that occurred over
a decade ago.