The Importance of Good Credit
Credit reports are the bread and butter of a good credit file. It is reported that if you have a comprehensive credit report or your credit report is clean; lenders will give you a loan at lower interest rates.
Credit reports provide important details about your financial past to lenders and prospective employers. Paying attention to the information on your credit report is vital to avoiding future hassles later in life.
What are credit ratings, and how important are they?
A credit rating, or credit report, is a numerical indication of your borrower’s dependability. The number/score ranges from 0 to 850, depending on the credit reporting bureau utilized.
Credit scores are not a highly complex subject, but there is a great deal of information connected with them that this article will not cover. Below is a detailed breakdown of credit scores.
- Poor credit: 300-579
- Fair credit: 580-669
- Good credit: 670-739
- Outstanding credit: 740-799
- Excellent credit: 800-850
The range of acceptable credit scores is 670 to 739. However, many people consider any credit score of more than 670 to be “excellent credit.” This implies that you will automatically have decent credit if you have outstanding or perfect credit.
If your credit score is greater than 670, you not only have excellent credit, but you have also moved from the “subprime” to the “prime” category. Individuals with excellent credit are more likely to qualify for the prime rate, which means you may pay less interest on your credit cards, mortgages, and loans.
The advantages of excellent credit
There are many advantages to having excellent credit. For instance, landlords are more willing to rent you an apartment—and if you’re looking for work, you may benefit from your employer doing a credit check as part of the recruiting process. The primary advantages of excellent credit are all monetary.
Here are three ways that excellent credit may improve your access to and affordability of goods and services.
Credit acceptance is simplified.
Banks and lenders are more likely to accept your credit applications if you have excellent credit. This implies that you will have a better chance of being approved when applying for credit cards, loans, or mortgages (and you might spend less time waiting to hear the results of your application).
Interest rates are reduced.
With a greater approval rate, those with excellent credit are often given cheaper interest rates. Paying lesser interest on your debt over time may save you a lot of money, which is why improving your credit score is one of the most prudent financial decisions you can make.
Improved loan terms
Individuals with excellent credit are often offered better loan conditions than those with bad credit. You may qualify for a larger credit limit on a credit card, or you may be eligible for a cheap fixed-rate mortgage.
Credit mine: credit scores are critical since lenders and credit providers will use this score to determine whether or not to give you money.
What is a negative credit report?
An unfavourable credit report is the more traditional credit reporting mechanism in Australia (and many lenders still are). Lenders determine whether to accept or reject prospective borrowers solely on the basis of the applicant’s credit history.
These adverse effects may include the following:
- Making late loan and credit card payments
- Completely failing to make repayments
- Applying for an excessive number of loans and credit cards concurrently Loan and credit card rejections
- Expenses that are past due by more than 60 days ($150 or more)
- Not repaying a balance transfer by the promotional period’s conclusion
In general, low credit scores increase your chances of being denied credit since they indicate that an unfavourable event (such as bankruptcy or default) is more likely to occur in the following 12 months.
Discover More: Bad Credit: Six Unknown Facts
How to get a favourable credit rating
If you want to fix and increase your credit score, you must first understand how credit scores are calculated and how credit is built.
Five variables contribute to your credit score:
- Payment history: 35%
- 30% credit usage
- History of credit: 15%
- Credit mix: 10%
- Credit enquiries made recently: 10%
If you want to increase or improve your credit score and move it into the excellent category, you must change your credit practices concerning those five criteria.
1. History of payments
Since payment history accounts for 35% of your credit score, make an effort to complete all credit card payments that are paid on time; every time, Missing a credit card payment may harm your credit score, mainly if you do not immediately make up the missing payment.
2. tilization of credit
Your credit usage ratio indicates the percentage of available credit you are presently using. To maintain excellent credit, keep your credit usage below 30% of available credit. If you have $10,000 in available credit, for example, avoid carrying debt on any of your credit cards that exceed $3,000.
If your credit card balances exceed 30%, pay them off immediately—this way, such large amounts have less chance of lowering your credit score.
3. Credit history duration
Lenders need to see that they can adequately handle credit accounts over an extended period. This is why closing old credit cards is a terrible idea, even if you no longer use them.
Your credit report only includes current credit accounts, and closing your oldest credit accounts reduces your credit history. If you want to create good credit, keep your credit cards active.
4. Credit diversification
Under your name, credit accounts of various kinds account for 10% of your credit score. If you have both revolving credit (such as credit cards) and instalment credit (such as a mortgage or auto loan), your credit score may rise a few points.
However, even if you just have credit cards, you may still develop and keep a high credit score, so don’t panic if you don’t have much credit mix yet.
5. Credit inquiries made recently
Whenever you decide to apply for a new line of credit, the bank or lender does a credit check. Having an excessive number of recent credit queries on your account may harm your credit score since asking for a large amount of new credit at once is a hazardous financial move if you’re attempting to establish excellent credit, the delay between credit card applications by three to six months.
Additionally, it is wise to keep a sharp eye on your credit score and credit report frequently. Millions of Australians have inaccurate credit reports, which may be harming your credit score inadvertently—so take a careful check at your Experian, Equifax, and Illion credit reports and challenge any inaccuracies you see.
How to keep your credit score high
While establishing a high credit score is the first step, maintaining it will enable you to continue to profit from the advantages of excellent credit. This includes access to the most accepted credit cards available today, ranging from cashback incentives to luxury vacation benefits.
- How do you keep your credit score high?
In essence, you continue to practise the prudent credit behaviours that earned you your favourable credit score in the first place. Pay all bills promptly, every time.
Maintain a modest credit usage percentage and avoid utilizing more than 30% of available credit. Instead of closing existing credit accounts, keep them open and use them to demonstrate a lengthy and respectable credit history.
Maintaining a good credit score is often simpler than establishing credit, but do not let your guard down. If you fail to pay your payments on time or charge amounts that you cannot repay, your credit score may begin to decline.
Helpful Tips For Your Credit History
If you have this perfect credit rating, you want to enhance or keep it. If you currently have bad credit, be assured that you can improve it; you do not have to live with a low credit score for the rest of your life.
Credit bureaux allow deletion of information from your credit record over time. Negative information typically expires after seven years; however, bankruptcies remain on your record for ten years.
Several activities are listed below that you may do to enhance or maintain your credit score:
- Make loan payments on schedule and in full.
- Avoid exceeding your credit limit. While unsolicited credit cards sent by mail may be tempting to use, they will do nothing to improve your credit score.
- Never disregard past-due payments. If you are having a harsh time repaying your debt, contact your creditor to arrange payments. An explanation may result in greater sympathy.
- Maintain an awareness of the kind of credit you have. Credit from financing firms may hurt your credit score.
- Maintain a minimum balance on your outstanding debt. Continuously exceeding your credit limit is regarded negatively.
- Decrease the number of credit applications you make. When your credit report gets “struck” — that is, evaluated — an abnormally high number of credit requests may be interpreted adversely.
Why You Should Conduct Regular Credit Report Checks
Because your credit rating has a significant effect on a large number of life’s critical choices, you want it to be free of mistakes and unpleasant shocks. If you discover inaccuracies, you may dispute them with the credit bureaux.
If your report includes data that paints a negative picture of you, you should be aware of the problems so you can explain them to prospective lenders rather than being surprised.
Other parties—generally with your permission—view your credit report, and you, of course, should as well. You are legally allowed to examine the information in your credit report once a year, and doing so does not affect your credit score—all three Australian credit scores. Equifax, Experian, and Illion provide customers with one free credit report each year via AnnualCreditReport.com.
Conclusion
The importance of a comprehensive credit report cannot be understated. A report consisting of your credit history, payment history, and other information can be vital to a lender evaluating your suitability for a new mortgage or credit card.
Having a clean credit history will create a favourable early impression with lenders, eventually leading to more profitable loan terms. Without this given informations, it is difficult to determine what steps to take next to improve or maintain your financial wellbeing.
This article is exceptional because it gives you a clear insight into your overall credit situation, giving you the tools to take effective action towards improving it. Make the most of every opportunity you have to improve your credit score.
If you cannot maintain your credit score or find yourself consistently being undercharged, then it’s time to consider hiring an experienced credit lawyer.
This is something that the Australian Credit Lawyer is working hard on, and although it can be frustrating at times, we want to help you. As credit repair lawyers, it’s our job to analyze your financial position and whether you have a comprehensive credit report. Call us now and get your FREE CREDIT ASSESSMENT immediately.