Credit score. The mention of the name is enough to strike fear directly into the heart of most, especially financially precarious millennials. The old saying that “ignorance is bliss” definitely does not apply here, especially with the COVID-19 pandemic still ravaging the world.
Why should I care about a credit score, I hear you ask? Good question! Credit score is one of those pesky finance related life skills that isn’t taught in schools, but really should be. It’s an output of successfully managing your finance inputs, and will affect your ability to get good deals (or any deal) on home loans, credit cards, and any other finance approval required such as a mobile phone contract. Successfully adulting in this area will ensure no embarrassing moments when you’re applying for credit.
Let’s step back momentarily to the COVID-19 issue. It’s important to note if you’ve made arrangements with your bank or financial situation around home loans, rent or credit card repayments due to financial difficulties if you’ve been made redundant or stood down from your job, then your credit score is safe for now. You only get black marks on your file for late payments (generally after 60 days - however double check in your local area), and other non-payment of bills or debts. The single biggest positive step you can take to safeguard your credit score, is being proactive with communicating. Connect with your lender or provider/s. They can’t help if they don’t know your situation!
Before bamboozling you with financial terms let's get the basics nailed. Terms you hear a lot but may not be familiar with:
Now that you know the basics on why, here are three simple steps you can take to ensure your credit score is tip top.
Whilst in the US they’ve had comprehensive credit scores for some time now (incorporating on time payments, limits vs balance for credit cards, defaults, bankruptcies) you should note Australia has only recently moved to this system. Up until recently it only noted “negative” credit events (e.g. missing payments, or details), not incorporating “positive” events such as making your credit card payments on time consistently for years. This has now moved to the US style system.
There are now several online options that you can obtain your credit score for free in minutes. There is really no excuse. Experian and Equifax are two of the largest players in the market worldwide. They have options for you to check your credit score free of charge. Bear in mind sometimes there can be variances between the two but they are generally very minor. A simple Google search for “free credit score report” should see you on the way to getting a true read on your current status.
With your credit score report in hand, start to address any issues that need to be fixed. If you have a good or excellent score, and nothing untoward on your report then pat yourself on the back! You’re already nailing your credit management. Results of your credit check may be a hot mess, but there is no need to panic either.
With any defaults on your file, contact the lender immediately to start the process of clearing this default. Coming across incorrectly marked credit history can happen, you address issues in the same way. Get on the phone or email and contact in the same fashion. You will also see instantly if there has been any fraudulent activity, such as applications for credit you haven’t made. Obviously an instant red flag! Don’t despair as these settled defaults once cleared up will disappear with time. The first thing you need to do is simply act.
With all the spilt milk cleaned up, it's good to check every 3-6 months or so to ensure everything is kosher and nothing shady is on your file. In some instances you can get notifications when someone has accessed your credit file, although bear in mind sometimes you might be charged for this service. Once you’ve got on top of this it’s much easier to manage moving forward after you’ve cleared the initial hurdles.
With a few simple steps you can remove the mystery surrounding your credit score, your credit score can move from a black hole that you’re too afraid to go anywhere near, to a financial facture you have successfully tamed.