How is your credit rating?

As we celebrated over some amazing seafood (and wine), we were reminiscing about our teen years, and how much importance our respective parents put into credit ratings. “You need to get a credit card to get a credit rating; otherwise you can’t buy a house”. The situation seemed pretty dire.

At 18 we both went out and got credit cards to make sure our credit rating was ok incase we needed to buy a car or house. Luckily we are not the type of people to abuse the credit card system so this didn’t really affect us; however credit cards have been known to burn a hole in some people’s pockets.

Free money!!!! (I wish)

So what is your credit rating, and what actually affects it??

A credit rating is the assessment of the credit-worthiness of an individual based on their borrowing and repayment history. This not only relates to your credit cards and loans, but can also be affected by late bill payments, including utilities and phone bills.

Credit providers (i.e. banks, credit unions etc) use this information to help work out whether you are likely to meet your repayments when you apply for a loan.

Unfortunately sometimes your credit rating can be incorrect or negative based on no fault of your own, and usually you will not know until your loan gets rejected.

If you do apply for a loan and are declined, you will need to probe further to learn the reason why you have been declined, they will not always tell you outright. If the reason is based on your credit rating, then you will need to contact a credit company who will give you access to your credit report. (listed below)

It could be as simple as an administrative error, or unpaid bill that you knew nothing about. Fixing this up can be a bit tedious but is definitely worth it in the long run to ensure you can get credit when you need it.

Whilst getting a credit card to improve your credit rating can be a good idea, it only works to your advantage if you don’t abuse the system. Late payments on your credit card can negatively affect your credit rating, so keep this in mind when you are spending up big on 12 pairs of shoes. As long as you can meet your minimum repayments, your credit history should be fine, however if you are late on one of your payments, you may get a strike against your name.

A close friend of mine had a credit ‘situation’ because a utilities provider marked down that she didn’t pay her bill, when she actually had. Unfortunately it took her a couple of years to sort the situation out, and it wasn’t even her error.

So clearly credit ratings are important, but they are also easy to tarnish, so make sure you look after yours. The top take aways from this:

– Always pay your credit card on time and don’t rack up debt if you don’t need it.

– Always pay your bills on time, and if you can’t, contact them to organise a payment plan.

– When moving, triple check that your accounts and bills are finalised.

– Keep a copy of your correspondence for at least 7 years, you may need to go back and prove yourself a couple of years from now.

– The system is subject to human error, if you are unsure then check your credit rating through the companies below.

The credit card got a bit of a work out over the weekend in Sydney, so I will be sure to pay the balance before any interest kicks in.

To check your credit history you can contact the following companies

Mycreditfile.com.au (veda) – 1300 762 207

Checkyourcredit.com.au (Dun and Bradstreet) – 1300 734 806

– This post is from our resident senior financial planner, Cara Brett. Check out her details in our about us page.

Posted in: Financial Planning and Cara Brett