The mysteries of credit histories
I am always amused by the way people speak about credit ratings. To many, credit ratings seem like some mythical secret that can be the difference between getting your dream home or living on the street. Despite their importance, credit ratings are largely misunderstood. This can lead to people taking advice from their family and friends about how to deal with their credit rating, often to their detriment.
When I was a young adult, a friend of mine got a credit card from the bank and started spending wildly on it. This was because his well-intentioned, but very wrong mother, told him he wouldn’t be able to get a home loan unless the bank saw he was willing to use credit, therefore improving his rating. For the record, this is a terrible idea.
So what is a credit rating? A credit rating is a numerical score that represents how trustworthy your reputation is as a borrower. Essentially, your credit score sums up the information on your credit report into one number. The higher the score, the more credit-worthy you are. You can find out your credit rating for free at the following website: www.getcreditscore.com.au.
Your credit rating is based on your credit report, which lists all the interactions you have had with regards to credit during your life. So what exactly makes up your credit report? Well its quite numerous but you can expect details about all of your credit cards including how many applications you have made, payment defaults or any overdue amounts. In addition, where utilities have been provided to you on the basis that you are billed after the fact, these will usually appear on your credit report (e.g. electricity, telephone). Your credit report will also have details about any bankruptcies, court judgments or debt agreements that you may have had.
If you find your credit rating is low and it doesn’t seem right, you can request a free copy of your credit report. Check out www.moneysmart.gov.au which lists credit reporting agencies that can assist you. If you don’t agree with what’s in your credit report, you can ask to have it changed or ask for your comments to be added to the report. This can be helpful if you have missed payments, but since this time, your circumstances have changed so that this should not happen again. You can also complain to the Ombudsman if the creditor does not provide you with an adequate response.
The best way to manage your credit rating is to not use credit to excess and to pay your bills on time. There are times in life when you need credit (such as a mortgage) but in most cases, doing so can substantially hurt your chances of getting ahead financially. As always, please feel free to get in touch or leave a comment if you have any questions.
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