When times get tough financially, we tend to pull back, tightening our purse strings as we try not to spend unnecessarily. But, there are still the necessaries that need to be paid for. We still need to pay the mortgage and cover the bills. We still need to buy food and essentials such as petrol. Life doesn’t stop simply because there is less money coming in, or because our financial future looks less certain.
Over the past few months, both the banks and the government have been working to reduce the pressure felt by Aussies doing it tough financially. The government has released packages such as JobKeeper, providing extra income where it’s needed. It has also allowed those who are eligible to release some of their super. Meanwhile, banks have let struggling home owners pause their home loan repayments as they focus their finances elsewhere.
But those measures are only temporary. JobKeeper payments are due to end in September, as are most repayment ‘holidays’ offered on home loans. Which is why many are now worried about what will happen then. With less money coming in and more money going out, some Australian households will struggle to cover even the necessary expenses, which could seriously impact their credit score if they get behind in their repayments.
While it may be hard to believe, the average credit score of consumers has actually improved during the COVID-19 crisis, according to credit reporting agency Experian. How could that be? One reason could be that both users and lenders have pulled back on credit. Lenders, for their part, have tightened their lending criteria, making it harder for borrowers to get approved. Meanwhile, many potential borrowers have chosen not to take out credit given their uncertainty around being able to pay it back.
For those who already had debt they needed to pay down, many have taken great pains to do so. According to credit reporting agency illion, its records show 14% of the money taken out of superannuation under the government’s early-release financial hardship scheme was being used to repay debt. Both the act of paying down debt and not making any new credit enquiries can have a positive impact in terms of credit reporting, helping those users build their credit scores despite uncertain financial conditions.
But with government subsidies, superannuation releases and repayment holidays coming to an end, all that may be turned on its head. For those who have been made redundant, for those who have been stood down, for those who are now earning less than they did before, meeting financial obligations could soon become that much harder. And if not being able to pay the bills wasn’t stressful enough, there’s the long-term effects missed or late repayments could have on their credit score to worry about as well.
So, why should anyone care about their credit score? Isn’t there enough to worry about without having to stress about some meaningless, made-up number? While your credit score may seem meaningless to you, it’s actually far from it. If you want to apply for a home loan, a car loan, a personal loan; if you want a phone contract or credit card; if you want to rent somewhere or arrange a hire purchase agreement, your credit score – and its accompanying credit report – is everything.
Summing up your creditworthiness in one neat little number, your credit score tells potential credit providers how likely you are to pay back what you borrow. If your credit score is low, this suggests you have not dealt with credit well in the past, perhaps being late with your repayments or maybe even defaulting on them. This would indicate to a potential provider that you may not be the best person to lend money to, which could result in your application being declined.
On the other hand, if you have a higher credit score, this shows you have acted responsibly with credit up until now, and would likely continue to do so. With a higher credit score, you would be more likely to be approved when you apply for credit – as long as you meet the provider’s other lending criteria, such as having a steady job, bringing in a certain income, and not being over-indebted elsewhere.
|Below Average||Average||Good||Very Good||Excellent|
|Below Average||Fair||Good||Very Good||Excellent|
|Zero Score||A Low Score||Room for Improvement||Good||Great||Excellent|
Whether you want to maintain a high credit score or build your credit score from the ground up, you need to know what factors affect your credit, both positively and negatively. As you can see from the above tables, each of the three main credit reporting agencies in Australia – Equifax, Experian and illion – have their own credit scoring system, as well as their own way to score consumers. So, how does that work?
Each credit reporting agency collects data about you as a consumer to allow them to build your credit report. Using algorithms to weight that information, they create your credit score, which will change over time depending on how you interact with credit. In essence, your credit score is a numerical representation of the information contained in your credit report at any given time. Potential credit providers can then use that score to assess your creditworthiness.
Well then, what factors affect your credit score? Let’s take a look at what Equifax takes into consideration in order to determine your credit score.
Time to start building your credit score? Let’s get into it.
This one is a no-brainer. How can you improve your credit score if you don’t know what it is to start with? You can request a copy of your credit report from any of the three main credit reporting agencies, or you can go through an online provider that specialises in helping consumers get to know their credit.
You will need to provide some personal information when you apply, usually backed up by some form of identification. If you opt for the credit reporting agency route, you can usually apply for a copy of your credit report for free once a year, but paid services are also available. Online providers may also offer their services for free, while others may charge a fee.
Before signing up, be aware of what you are permitting those providers to do with your data, especially when dealing with those who don’t charge a fee. It’s also a good idea to find out which credit reporting agency they take your info from.
Your credit report contains a lot of information about you and your financial status. If you want potential credit providers to see you in the best light, it’s a good idea to make sure all the information they see is actually correct.
TIP: When you apply for credit, you don’t know which credit reporting agency the provider will use to check your credit score. Before you apply – or before you start your credit improvement journey – check your credit report with each of the three credit reporting agencies to ensure the information held within each one is present and correct.
Aside from correcting any errors on your credit report, the only way to increase your credit score is by making positive changes in the way you deal with credit. Fortunately, with Australia’s system of comprehensive credit reporting, it’s not just bad behaviour that affects your credit score. Your good deeds will also come into play.
At 20, Emma has never applied for any form of credit, apart from a phone contract. She applies for a basic credit card with a low rate, low fee and low credit limit. She meets the minimum income requirements, and having been a good customer with the bank her entire life, she is approved for the card.
Knowing that her credit score is low and the information held within her credit report is limited, Emma uses her credit card to build her credit score over time. She uses the card regularly, but makes sure to pay it down to zero every week. She never misses a repayment, and never goes over her credit limit.
Within two years, Emma’s credit score has increased significantly, allowing her to apply for a car loan. After assessing her credit score and credit report, the car loan provider approves Emma’s application, and she then uses that loan to build her credit score even further.
How long it takes for you to see improvement will depend on the state of your credit score when you start. The lower your score is, the longer it will take to improve. However, if your credit score is around average to start, you should expect to see improvement in 12-18 months. Keeping a close eye on your credit score can allow you to see it build over time, giving you motivation to keep at it.
It’s also worth remembering that the negative information held within your credit report will drop off over time, helping to increase your credit score as it does. Repayment history drops off after two years, while defaults, clearouts, writs, summons and court judgements are removed after five years. Serious credit infringements such as bankruptcy remain on your credit report for seven years.
TIP: Monitoring your credit report allows you to do more than just check your credit score. By checking your credit report regularly, you can keep an eye out for fraudulent activity and report it as soon as it happens. In doing this, you could limit the impact fraud could have on your credit score, making it easier to come back from.
Improving your credit takes time and effort – and a little help goes a long way. Which is where services such as Tippla come in. Having recently launched in Australia, online platform Tippla provides a way for Aussies to manage their credit scores, offering insight into what goes into their credit report, as well as how users can build their credit score over time.
Tippla Director, Layton Brooks, describes Tippla as a financial empowerment tool. “Very few people in Australia know how their credit score impacts their lives and we’re here to change that,” Layton says. “We’ve designed our dashboards in a way that allows members to easily digest complicated credit history, check their financial status and learn about credit.”
On a very basic level, Tippla is an online platform that allows users to check their credit scores and monitor them over time. What sets Tippla apart from the competition, however, is the insight and information it provides to allow each user to build their credit score as they build their understanding of how the credit reporting system works.
“The customer is at the heart of everything we do and our core goal is helping members take back financial control,” Layton says. “Knowing your credit score is only half the battle – understanding how to improve your score over time and use it to your advantage is where customers see real wins.”
Which is where Tippla’s Credit School comes in. Offering a range of short courses packed with easy-to-digest information, Credit School provides all the essential info users need to know in order to improve their credit scores. “Our Credit School offers members real-life application of key financial information such as tackling debt and buying a car,” Layton says. “It’s like a maths lesson you can actually use!”
Another key factor that sets Tippla apart is the fact that it provides credit score info from not one but two of Australia’s main credit reporting agencies. So, instead of just seeing one report and one credit score when you sign up, you will see two – from Equifax and Experian – and you may be surprised to see they’re quite different in both the score they offer and the information they contain.
“Different bureaus hold different information about any one individual,” Layton advises. “We’ve gone for the multi-bureau approach so that our members don’t get any nasty surprises along their credit journey. It is not uncommon for our members to have a great credit score with one bureau and an average credit score showing defaults with another. This can be catastrophic when applying for services such as a home loan.”
But with knowledge comes power. Once you know what each credit reporting agency has to say about you, you can work on changing things – and if necessary, reporting any errors you find.
What about illion, the remaining major credit reporting agency here in Australia? According to Layton, Tippla is working closely with illion to integrate their credit reports into Tippla’s offering in the future.
Okay then, what exactly does Tippla offer?
On top of all that, you can benefit from personalised offers that match your credit score, articles and news tailored to your goals, and a soon-to-be-released spending tracker that will allow you to see exactly where you’re spending your money – and where you could cut back.
When you sign up, you provide some personal details and identification information that allows Tippla to confirm you are who you say you are. You will have to provide your name, address and date of birth, plus some ID markers on your driver’s license and Medicare card for instant verification.
If Tippla cannot verify you, you will need to provide a bit more info, including photos of your identification and proof of address, as well as a selfie with you holding up a one-time code. This does feel somewhat like you’re providing ‘proof of life’ in a ransom movie, but it is for a good cause. You wouldn’t want just anyone accessing your credit info, after all.
Which brings us to data security. Security is something Tippla takes very seriously indeed. Tippla is not only incredibly vigilant about security and authentication, it also uses a 128-bit encryption and multi-level infrastructure to lock down members’ information.
In terms of day-to-day use of Tippla, you can expect monthly updates on your credit score, while accessing your info as often as you like. You can get schooled using Credit School, to then apply for credit products that match your credit score. Say what? Yep, Tippla allows you to see how likely you would be to get approved for certain credit products, giving you a ‘probability rating’ based on your credit score.
As you continue to work on building your credit score, Tippla is also working on improving its offering, providing even more handy tools and functionality for you to take advantage of. According to Layton, credit reports “are just the start”.
“We are working on a range of exciting features that will contribute to improving the financial health of our members,” he says. One such feature is Opening Banking, which is due to be launched later this month. This spending tracker is designed to help users see what they’re spending and where, allowing them better insight into their spending habits.
With that knowledge, users can budget more efficiently, while continuing to improve their credit. From there, users can unlock unique partner offers that allow them to get better deals across a whole range of different services, from home loans and insurance, to telcos, utilities and so much more.
Sound good? Hit up the Tippla website to register today and view your credit score anytime, for free.
Disclaimer: The information contained within this post is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.
Pauline is a personal finance expert at CreditCard.com.au, with 8 years in money, budgeting and property reporting under her belt. Pauline is passionate about seeing Aussies win by making their money – and their credit cards – work smarter, harder and bigger.
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