Each week across the ACM network Ali and Gaby Rosenberg offer quick tips for big wins in understanding your money. The sisters are co-founders of the Blossom micro-investing app.
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![Busting the myths on credit scores and how to boost yours. Busting the myths on credit scores and how to boost yours.](/images/transform/v1/crop/frm/172575538/37381e52-bdff-46fc-bad9-3cd1ff1b6947.jpg/r0_0_1600_900_w1200_h678_fmax.jpg)
Credit scores play an important role in measuring an individual's financial health in Australia. Yet, much like the scales in your bathroom, many of us would rather avoid the insight. Don't skip it! Knowing your credit score and why it matters can actually be empowering, and help you make better financial decisions.
What is a credit score, and why does it matter?
Your credit score indicates your creditworthiness, helping lenders assess the risk of lending you money. In Australia, credit scores are calculated by credit reporting agencies like Equifax, Experian, and illion, who collect information about your credit history, including borrowing and repayment behaviour. A good credit score can mean access to lower interest rates (reduced cost of borrowing), higher credit limits and better chances of being approved for a loan.
What does a 'good' credit score look like?
Scores range from 0 to 1,200, with higher scores indicating better creditworthiness. Generally,a credit score over 660 is considered good, while a score of 853 or above is considered excellent.
What does impact your credit score
1. Your types of credit: A mix of credit types, such as credit cards, personal loans, and mortgages, can positively affect your score.
2. Your payment history: This one is straightforward - loans and credit card bills positively impact your score, but late payments, defaults, or a bankruptcy will lower it.
3. Credit Utilisation: This means the ratio of your credit card balances to your credit limits. Lower utilisation rates are better for your score.
4. Length of Credit History: A longer credit history can actually improve your score, as it provides lenders with more data for assessing your credit behaviour.
5. Recent Credit Inquiries: Multiple credit applications in a short period can negatively impact your score, as it can be an indicator that you're under financial pressure.
The myths: What doesn't impact your credit score
1. Checking your Credit Score: Checking your own credit report is considered a "soft inquiry," which has no impact on your score; in fact, checking it regularly is a good idea.
2. Your Income Level or whether you're employed: Lenders may consider your income in your application to assess your ability to repay, but it doesn't affect your score itself.
3. Savings and Investments: The amount of money you have in savings accounts or investments doesn't have any bearing on your credit score.
4. Rent and utility bills: While paying utilities and rent on time is a good idea, it doesn't impact your score unless you fail to pay and the debt is forwarded to a collection agency.
5. Your age, marital status or demographic information: Nationality, age, race and whether you're in a relationship don't impact your individual credit application.
In Australia, you get a free copy of your credit report once a year from each of the major credit reporting agencies. So go forth and investigate! If you think you'll be borrowing at some stage, making sure it's accurate, up to date and reflecting all the things you are doing right is an easy way to show lenders just how financially healthy you are.
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Sisters Ali & Gaby Rosenberg are the co-founders of Blossom App.
- Nothing in this article should be construed as being personal financial advice. It is general in nature only and has not taken into account your particular circumstances, objectives, financial situation or needs. You should consider whether the information, strategies and investments are appropriate and suitable for you or seek personal advice from a licensed financial planner before making an investment decision. Past performance does not indicate future performance. BlossomApp Pty Ltd (ABN 74 644 216 151) is a C.A.R. (No. 001284228) of Gleneagle Asset Management Ltd (AFSL 226199). Consider the PDS and TMD at blossomapp.com to ensure the product suits your needs.
- ACM co-owner Alex Waislitz has a stake in a company that provides services to Blossom. ACM is the publisher of this masthead.