You may have heard that in the USA a person’s credit score can have quite an impact on their ability to get credit. But here in Australia, even with a low credit score, it’s usually possible to obtain finance in some form. If that’s the case, then why should you care about your credit score? Here are the reasons why staying on top of your credit report and knowing your credit score can be beneficial.
You might think that because you don’t have any outstanding loans (or a loan at all) and you pay your credit card off in full each month, you don’t really need to worry about your credit score–or maybe you think you don't even have one.
But the truth is you usually have a credit score much earlier in adulthood than you might think.
If you’ve ever had a mobile phone or internet plan, or used electricity and gas, then you will have a credit file and therefore a credit score.
So why should you care about what your credit score is? Let’s take a look.
Your credit score impacts your borrowing ability
Credit providers will use your credit score as part of their approval process when making the decision about whether they will lend you money.
Generally, the higher your credit score the better your chances are of being approved for credit, if the amount you are requesting is in line with your income.
While your credit score is only one factor of many that lenders look at when approving your application, it’s an important one.
So before applying for a loan or credit card, find out your credit score so you can know where you stand.
Because all credit enquiries are recorded on your credit file, it’s better to know before applying if you have a low score.
That way you can work on improving it before risking the chance of being declined and potentially further reducing your score.
Knowledge is empowering
By knowing what information credit providers are seeing about you, it can help you to effectively manage your credit score.
If you’ve been shopping around and actively applying for credit cards from a few different lenders at the one time, this can negatively impact your score.
Instead, if you’re aware of what your score is, you can compare credit cards online before applying and make a better decision about what credit card you should apply for and are likely to be approved for.
Improve your chances of getting a better finance deal
Getting a lower rate of interest or better payment terms for a loan can help you to save money.
Knowing you have a high credit score enables you to use this information in your negotiations with creditors to get a better deal. You are a lower risk option to them, so this gives you some leverage.
Conversely, if you have a lower score you may be seen as a riskier option, so it is wise to shop around and discover where you have the best chance of being approved before applying.
It’s traditional in places like the US for lenders to give customers with a higher credit score a better interest rate, and we are starting to see signs that the trend is beginning to happen here in Australia too.
You can access your credit score by using our free credit score tool.
Discover what your current score is and what information creditors can see, as well as be alerted to any changes to your credit score over time.