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Keeping score of your credit rating

Paul Logan • May 30, 2017

In many ways, applying for a loan has never been easier. Interest rates are comparatively low and competition among lenders for new business is intense. So it can come as a shock when a loan application is turned down. The reason is often a bad personal credit score, but few people understand what that is, let alone how to improve it.

Having a good credit score can help you secure the best financial deals, but first you need to understand what your credit score is and what steps you can take to improve it.

What is a credit score?

Your credit score is based on information collected by credit reporting agencies and documented in your personal credit report. This information includes personal details such as your age and where you live, how much you’ve borrowed and who from, the number of credit applications you’ve made and any unpaid or overdue payments. These could relate to a bank loan, rent, mortgage or even an overdue phone bill.

Lenders and credit providers such as banks and credit unions use this information to work out how risky it is to lend you money.

How do you find your credit rating?

The good news is that you can get a copy of your credit file once a year for free as well as your credit score from online sites such as Creditsavvy, Equifax (previously called Veda) and Finder (which uses Equifax scores).

Depending on the credit reporting agency, you will receive a number out of 1000 or 1200 that’s broken down into five categories, from excellent to below average. If you fall into one of the lower categories, lenders may ask for more information or deny you credit.

It’s worth checking your credit file before you apply for a loan to make sure the information is accurate and that you haven’t been the victim of fraud or identity theft. If there are mistakes, credit providers and reporting agencies are legally obliged to investigate and correct them free of charge.

How to improve your credit score

You can increase your chances of being approved for a loan by understanding your score, correcting any errors and improving your creditworthiness with some simple actions.

  • Pay your bills on time.

When you’re busy or on the move it’s easy to overlook an electricity bill or to forget a payment. One way to avoid this is to set up automatic payments.

  • Lower your credit card limits.

You may think having a high credit card limit is a mark of success, but it can count against you. Lenders consider your credit limit as a liability even if you never use the full amount and pay your balance in full every month.

  • Consolidate your debt.

By consolidating several personal loans or credit cards into one it can make it easier to keep track of repayments and save on fees and interest.

  • Avoid making multiple credit enquiries.

Making lots of enquiries in a short space of time has a whiff of desperation about it and can lower your credit score. Do your homework, only consider a new loan or credit card when you need it and then apply for the options most suited to your needs.

  • Notify your credit providers if your circumstances change.

If you move be sure to notify your bank, other lenders and utilities so your bills will be redirected and you won’t inadvertently miss a payment. The same goes if you change financial institutions – you need to contact loan providers to switch over automatic payments.

If you are about to start house-hunting or see an attractive investment, then timely access to credit is critical. Knowing your credit score and improving it if necessary can not only speed up your loan approval but also help you negotiate the most competitive rates.

If you would like to discuss ways to tackle debt and get your finances in shape, give us a call.

What does the Federal Budget mean for me?

By Oliver Holcombe • 14 May, 2024
Treasurer Jim Chalmers has high hopes that his 2024 Federal Budget will rein in inflation earlier than expected, ease cost-of-living pressures and build a stronger economy in the future.

Federal Budget 2024-25: Tax Implications

By Ryan Troe • 14 May, 2024
Major tax cuts were the centrepiece of the Albanese government’s third Federal Budget, even though the changes have already been announced and legislated. Small businesses can breathe a sigh of relief, with the popular $20,000 instant asset write-off hanging on for another year and a valuable bill rebate on the way to help with the burden of high energy bills. Tax cuts for everyone From 1 July 2024, all 13.6 million Australian taxpayers will receive a tax cut, with the average taxpayer’s tax bill being $1,888 (or $36 a week) lower. Under the new rules, the lowest tax rate reduces from 19 per cent to 16 per cent, with the 32.5 per cent marginal tax rate reducing to 30 per cent for individuals earning between $45,001 and $135,000. The current 37 per cent marginal tax rate will be retained for people earning between $135,001 and $190,000, while the existing 45 per cent rate now applies to income earners with taxable incomes exceeding $190,000. Low-income earners (under $45,000 p.a.) are the biggest winners from the changes. A single taxpayer with a taxable income of $40,000 who pays $4,367 in tax in 2023 24, would have received no benefit from the original Stage 3 tax plan, but now receives a tax cut of $654. Boost for tax compliance On the revenue side, the Budget includes savings of $2.5 billion in tax receipt measures through a crackdown on the shadow economy, fraud, and tax avoidance. Taxpayers can expect the ATO to continue its recent tougher stance, with technology upgrades to enable better identification and blocking of suspicious activities in real-time and a new compliance taskforce focussed on recovering lost revenue and stopping fraudulent refunds. Foreign residents will pay an additional $600 million over the next three years due to strengthening of the capital gains tax rules applying to this group. Law change for old tax debts However, one controversial measure, labelled ‘robotax’ by the media, may be abandoned, according to the Budget papers. The ATO had been calling in historical tax debts, some accrued more than a decade ago, saying it had no choice under current laws. But the government now intends to change the tax law to give the ATO discretion about whether to collect the individual, small business, and not-for-profit debts. Instant asset write-off retained The deadline for the $20,000 instant asset write-off will be extended to 30 June 2025, allowing small businesses with annual turnovers of less than $10 million to immediately deduct eligible assets. In addition, $23.3 million will be spent boosting adoption of eInvoicing to help improve small business’ cash flow and productivity. Relieving energy bill pressure Direct relief for small business energy bills will come in the form of a $325 rebate, while there will also be new funding for reforms to help businesses find their best electricity contract. Assistance for smaller entities With trading conditions remaining difficult, small business will receive $641.4 million in new targeted support. This includes $10.8 million to extend both the NewAccess for Small Business Owners program providing free mental health support and the free phone-based Small Business Debt Helpline. An additional $25.3 million will be provided to expand the Payment Times Reporting Regulator and help improve payment times. Nuisance tariffs abolished From 1 July 2024, 457 nuisance tariffs will be abolished by the government to cut business compliance costs. New funding to expand the government’s Digital ID system is designed to lower the administration burden for small businesses storing identification data on their customers and employees. Anti-money laundering crackdown The Budget includes $168 million over four years to pay for reforms to Australia’s anti-money laundering and counter-terrorism financing regime. Tighter rules are expected to result in lawyers, accountants and real estate agents being required to undertake due diligence on their customers and report any suspicious activities. Information in this article has been sourced from the Budget Speech 2024-25 and Federal Budget Support documents. It is important to note that the policies outlined in this article are yet to be passed as legislation and therefore may be subject to change.
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