Financial Foundations: The Proper Care and Feeding of Your Credit Score

A credit score is a kind of grade that indicates how financially responsible a person is. When a bank or other financial institution needs to lend to you, a look at your credit score can show them how likely you are to pay them back. It isn’t just lenders who use credit scores as a guide when dealing with people, though. Insurance companies, landlords looking for tenants and even employers use credit scores see how responsible, stable and trustworthy a person is overall.

Who calculates credit scores and how is scoring done?

Credit scores are calculated by private businesses called credit reporting agencies. Australia has two major credit reporting agencies – Veda Advantage and Dun & Bradstreet. These businesses maintain a file on every financially active person. If you have ever had a credit card, you probably have a credit file with these agencies. They make a note of every late payment or other negative financial event in your life. Every such record lowers your credit rating and shows you as a less-than-dependable person to do business with.

In other countries, credit agencies maintain comprehensive files on every person’s financial habits. They make a note of both good financial behavior and negative events. In Australia, though, credit reports only show instances of financial mistakes. While nothing shows for every payment you make on time, a record does appear in your file every time you fail to pay on time.

Australian credit is rated on a scale from 200 to 1200. To view your credit score, you need to order a score from one of these credit reporting agencies.

If your credit score is lower than you would like here’s what you can do to address it

The closer your credit score is to a rating is to 1200, the more financially responsible a lender like Ferratum Australia will consider you. Consequently, you’ll be quoted lower credit card interest rates, bigger credit card spending limits and lower rates when you need to borrow for a car or a home.

What can you do to keep your credit file as healthy as possible?

• Each person is entitled to a free copy of his credit file once a year. You only need to give them a few pieces of identifying information like your driver’s license number to claim your copy. You need to study your credit report to check for any discrepancies. If you see any items there that are attributed to you by mistake, you need to contact the credit agency about correcting the problem.
• If you know someone with a great credit score who is willing to apply to have an additional credit card issued in your name, it’ll help your credit score. When the credit agencies see that someone with a great credit score trusts you enough to add you on as a cardholder it will reflect positively on your financial character.
• Make sure that you pay every bill on time. The fewer the negative events that are reported on your credit report, the better your credit score is.

Finally, you need to be financially active to have a good credit report. One of the best ways to have a healthy credit score is to own and actively use credit cards.

William Dawson recently repaired a bad credit score, and has learned a lot in the process. An avid blogger, he enjoys sharing his insights with others online.

 

Tags: Credit card, Credit history, Credit rating, Credit rating agency, Credit score

Category: Credit Score