Aussies looking for a personal loan may not know how their credit score works, says Experian
If your credit score isn’t something you think about over your morning coffee or jog, you’re not alone. 65% of Aussies have never once checked their credit report and big four customers are the worst culprits, Experian research has found. But with recent changes in credit reporting now starting to take effect, it’s more important than ever that Australians understand how valuable a good credit score can be.
The big four banks made the shift to comprehensive credit reporting earlier this year, yet three in five Aussies aren’t aware that their credit providers are sharing more of their personal financial information, according to Experian. This could have far reaching effects for Aussie borrowers who don't understand how the system is changing.
Will comprehensive credit reporting affect my credit score?
With at least 50% of the big four’s customer credit data being released to credit bureaus this month, and 100% of it releasing by September 2019, Aussies can expect changes in their credit score.
Konstantinidis suggested that this shouldn’t be a cause for concern, but understanding how comprehensive credit reporting works is the first step in maintaining a good credit score.
“Confusion and lack of awareness about credit score changes mean borrowers with a strong credit history could be missing out on their chance to access lower rates of interest,” he said.
“People most likely to see the impact of changes to their credit score sooner rather than later are also the ones most in the dark.”
What will affect my credit score?
With 87% of Aussies incorrectly assuming that paying utility bills will improve their credit score, it’s time to close the gap on what will and won’t impact your credit score. According to Experian:What will
- Adding a new credit account can increase or decrease your score, depending on how you manage it
- Making repayments on time will increase your score
- Bringing accounts back up to date will increase your score
- Having too many open credit accounts will decrease your score
- Having too much unsecured credit will decrease your score
- Having a high combined limit on your credit accounts will decrease your score
- Paying your utility bills on time
- Getting a pay rise
- The value of your assets
- Checking your credit report
With the old model, a default would have had a significant impact on your creditworthiness, but in a scenario by Experian, it’s shown that even with defaults on your credit report, you can still have some serious borrowing power, as long as the rest of your financial history is up to standard.
The report shows that if you’ve defaulted on a $500 loan, but paid it off 18 months ago, you could still be approved for a loan if your current repayment history is consistent and you’re up to date on all of your current loans. On the other hand, if you’ve never defaulted but are showing evidence of a weak repayment history due to missed bills, you could be denied a potential new loan.
Here’s how to make sure you’ve still got a great credit score with these new changes:
- Keep an eye on your credit score. It’s easy to request a free copy of your credit report, so there’s no reason you shouldn’t. Check this before applying for any new debts, because if your application is rejected, it’ll go on your credit report.
- Always make repayments on time. Even the most organised people can miss repayments, so setting up direct debits is a great way to automate this process. You’ll also be saying goodbye to late fees and keep your credit report healthy too.
- Don’t utilise too much credit. As a good rule of thumb, don’t actively use more than 30% of your credit limit at a time. This will help to keep your credit score high.
Once you understand how comprehensive credit reporting works and your credit score is in top shape, you’re ready to start searching for a personal loan. Choose from over 500 personal loans on our personal loan comparison tables to find one that suits your needs.