Did you know well after leaving school and even university, we are being graded? Each and every one of us has a financial grade sitting up in the cloud just waiting to allow the sun- or in some cases- waiting to pour dark heavy rain down on your brand new home, car or personal loan you’re hoping so much for. Why is this important? You’re either going to get the loan or you’re not right? Well no, with the competitive nature of our lending in Australia your score can assist in negotiating a lower interest rate or being eligible for some of the better lending options available.
Our financial grade is officially called a credit score. In Australia, they are held by a private company called Veda which is why you will hear some lenders refer to it as your Veda score but really it’s all the same thing. So how does this work?
From the day you first apply for any type of credit, your score is created and then constantly adjusted from that moment on. Here are some factors:
Type of credit provider and loan size on previous applications: Different credit providers and types of credit you apply for having different impacts on your score. For example, those instant payday loans are probably not the best idea if you’re working on your credit score. Another factor is the higher the dollar value of your previous applications. Also, the presumed risk of certain types of lending may have an impact, for example, the difference between say a $5000 credit card and a $500,000 mortgage.
The number of credit enquiries and shopping patterns: Whilst sometimes shopping around is just the right thing, in this case applying for too many loans or credit cards just to see if you get them, or if some say no can make things worse and reduce your score.
Being a Business Director and Commercial address information: Again, like the above, some things which are positive in the real world can be seen as a risk in the world of credit. While a director of a company is a high achievement, it can be seen as a risk when it comes to credit. Stability at a commercial address for a substantial period of time can also affect your score and possibly negate some of the risks they assess when being a business director.
Age of credit report: If you’re on the younger side of life or never applied for credit before, this can also impact your score, generally speaking past performance is seen as the best indicator of future choices so no history makes this hard to gauge.
Personal details: Your credit file also shows some but not all personal information, for example, your age, address and how long you have resided there and your employment status. All of these things are not only used to match with your answers given on your application but also contribute to the score you are given.
Default information and any Court writs and default judgements: Any unpaid bills that are left ignored and not finalised can create defaults on your credit file, which reduce your score.
So once the above information has been collated, adjusted and monitored, what does your score mean?
The average Veda score currently is 760 and interestingly women average higher at 768 and men slightly lower at 756. The other interesting fact is that as a nation we have increased the average credit score from 751 in 2013 to the current 760, so it looks like we have been good little Vegemites and have been cautious of paying our bills on time and watching our budgets.
Generally speaking, a score between 1200 and 622 is seen as a good score, anything below the 622 mark and isn’t the most ideal picture to take to the bank and your chances of negotiating a lower interest rate are certainly dropping.
You’ve had an interesting and challenging past and your score isn’t so perfect what can you do?
Well, I’m glad you asked there are a few things you can do and be aware of:
Firstly knowing your score is key BEFORE you go looking for any loans or credit. Currently, you can easily get it through www.getcreditscore.com.au. It’s as simple as entering your details along with your license number. Being such an advocate of personal and small business finances, David Kosh has a 1 million credit score giveaway, so now is a good time to do it and be informed.
If you have defaults, start paying them, might not be an instant fix, but you’re getting on top of it and starting the improvement.
Stop applying just for the sake of applying, make your enquires, but politely say no to going all the way through to the credit check until you’re sure it’s the loan for you.
Work out your budget, either on your own with a spreadsheet or get some help and keep those bills paid on time. Even if your record is a little spot at the moment and your score is low let’s now add to it, onward and upward and all that.
The bottom line here is, like all things financial, knowledge and preparation are key. Know your numbers, find out what they mean and use them to your best advantage. So I challenge you, head to the website above, fill in your details, take a deep breath AND face your uncertainty head-on. Find out how you’re grading. It’s going to be good or bad either way you know. Should it not be so ideal, well then let’s looks at some budgeting and get you back on track?
Your Angel of the Numbers, Sarah.