Why you can't afford to ignore your credit score

Why you can't afford to ignore your credit score

It’s been said that having a bad credit score is more detrimental than having a bad reputation, and when it comes to taking out a personal loan, or something as simple as going on a new mobile plan, it’s clear this is true.

A credit score is a tool that banks, credit card providers and other institutions (such as mobile companies), use to help determine your reliability as a borrower and customer. This score is based on your credit history and debt, and is determined using details from your personal finances.

If you’ve been putting off checking your credit score in fear of an average rating, you could be making common mistakes that are detrimental to your credit history. Worse, you are missing a valuable opportunity to improve your score.

How is my credit score calculated?

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According to Equifax Credit Score System, your credit score can be between 0 and 1200 depending on multiple factors, outlined in the following credit score bands and ranges:

833 – 1200: Excellent
You are a reliable borrower and among the top 20 percent of the credit-active population of Australia. Your odds of keeping a clean file are five times better than the average Equifax credit-active population.

726 – 832: Very good
Although you had your share of financial misses, you still have a decent score. Your chances of keeping a clean credit report are two times better than the average Equifax credit-active population.

622 – 725: Good
Your odds of keeping a clean credit report are better than the average Equifax credit-active population. It’s less likely you will face an adverse event in the next 12 months.

510 – 621: Average
It’s likely that you might experience an unfavourable event such as a default, bankruptcy or court judgment in the next 12 months.

Why you shouldn’t turn a blind eye to your credit score

  1. Looking for a home loan?

If you’re ignoring your credit score and are in the process of searching and applying for a home loan, you could be hit with a higher interest rate. If you have a lower than average score a home loan provider may feel they need to charge you a higher interest rate than someone with an ‘excellent’ rating may be offered.

This is because your credit score helps home loan lenders to determine your reliability as a borrower, and the higher your score the higher the indication that you are a lower risk than others on defaulting on the loan.

  1. Looking for a personal loan?

Whether you need a little extra help planning your wedding, want to consolidate debt or purchase a car, your credit score will be a key factor in this process. As with a home loan, your credit score helps to determine your ability to pay back a personal loan. If your score is out of the desired range you may need to offer up security to take out a loan – if you’re not outright rejected altogether.

While a secured personal loan is not an uncommon type of loan, you may have initially been on the hunt for an unsecured loan. Secured loans require you of offer up security against the loan, such as cars, jewellery, term deposits and other assets.

The downside of this is that if you default, the lender will claim the security. This is particularly important to consider for car loans, as some lenders only accept new vehicles (less than two years old) as a guarantee. Further, if your car devalues and you default on the loan, the lender can still take you to court to pay the difference.

  1. Looking for a credit card?

It’s a little known fact that if you have a lower than average credit score, or no credit history altogether, applying for a credit card and being rejected can adversely affect your credit score. If you’ve never looked at what your credit score is and have applied for a credit card, you could be setting yourself up to fail without even realising.

  1. You may be a victim of fraud

Another key reason you shouldn’t ignore your credit score is because your credit history could include mistakes. This is not an uncommon thing to happen, and one of the most frequently occurring errors could be a family member, or stranger with a similar name to yourself, having their credit history mistaken for yours. Worse, someone could have committed identity fraud using your personal details and caused damage to your credit history.

The Australian Securities & Investments Commission (ASIC) provides a detailed explanation on how to fix incorrect information on your credit report, and how to contact an Ombudsman if you need help.

How can I improve my credit score?

Whether you’ve never checked your credit score, or you know it’s fallen and you’re too nervous to look, it’s crucial that you shake off these fears and bite the bullet.

There are a range of ways to try and improve your credit score, and it starts with ripping the band-aid and going through your credit history with a fine-tooth comb.

  1. Check for mistakes – as we’ve already mentioned, it’s not uncommon for mistakes to appear in your credit history.
  2. Pay off your existing debts – if you’re drowning in debt you’ll struggle to improve your credit score. Work on paying off your debt ASAP.
  3. Cancel your credit card(s) – if you don’t trust yourself to stay out of debt, a little self-control (and a pair of scissors) may be required.
  4. Add positive information to your credit report – there are a few lifestyle and financial factors which, if they have not been included in your report, should be added by contacting a credit reporting agency.

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Learn more about bank accounts

Can British expats still open bank accounts?

As a British expat, you can open an Australian bank account, and you can apply for an account the same ways an Aussie would. You can even open an account online from the UK prior to relocating.

If you’re overseas, the bank you choose to open an account with may call you to provide you with our new account details beforehand. You can then have your ID verified within a branch once you’ve arrived.

And if you’re already living down under, the following list outlines the types of information required by most banks when opening an Australian bank account.

  • Australian residential address
  • Tax file number (TFN) or a TFN exemption
  • Identification (this can be your passport)

Can debt collectors take money out of your bank account?

Many people find themselves struggling to cope with debt at one time or another. In these cases, a debt collector could contact you to demand payment for a debt, to explain the consequences of you failing to pay a debt, or to organise alternative payment arrangements.

If you’re contacted by a debt collector, you may be wondering what their rights are and whether they can take money out of your bank account.

Creditors cannot access money in your bank account unless a court order (also known as a ‘garnishee order’) is made to allow creditors to recover debt by taking money from your bank account or salary.

If this happens, the creditor can take money out of your bank account unless you pay the debt in full or make an alternative payment arrangement such as paying in instalments through the court.

Can I set up a bank account online?

Most Australia-based lenders will allow you to set up a bank account online. Requirements vary from lender to lender, but you will probably need to provide a passport or birth certificate, as well as a driver’s licence, Medicare card or another form of secondary ID.

How do I transfer money from Paypal to my bank account?

Transferring cash from Paypal into your bank account is simple…if you have a Paypal account that is.

Once you’re logged into your Paypal account, the account balance will appear on your home page. Below your balance are two options:

  • Add money
  • Withdraw money

Choose option two if you want to transfer money from your Paypal account to your personal bank account.

The next screen will prompt you to either enter new bank account details or choose a bank account that’s connected to Paypal. You can always add more bank accounts to your Paypal profile.

Another way to transfer out of Paypal is by jumping to the wallet tab on the top menu, and clicking ‘transfer money’. Both options will give you the same result.

How do you open a bank account in Australia?

Opening a bank account in Australia is usually a straightforward process. Some banks give you the option of opening an account online, while others require you to visit a branch.

Different bank accounts offer different features, so it’s best to compare your options to find one that suits you.

All banks require you to pass an identity check to open a bank account. Australia uses the 100-point identification system, which means you’ll need to show a number of forms of ID that, together, add up to 100 points.

Common ID types include a driver’s licence, passport, Australian visa in a foreign passport, and Australian Medicare card. You’ll find out what types of ID are accepted when you go through the sign-up process online or at a branch.

Once your account is open, you’ll be given or sent a debit card that you can use to make purchases and withdraw money from your account.

Can the government take your money from your bank account?

There are some instances when the government can take money from your bank account. This generally occurs in situations where you have an outstanding government debt.

Before it can take money from your bank account, the government authority owed money would first need to issue a garnishee notice. 

A garnishee notice is issued by the government agency (such as Centrelink or the ATO) to a third party that holds money for you or owes you money.

To take money from your bank account, your bank would be issued with the garnishee notice requiring it to pay ‘your money’ to the requesting agency to satisfy the debt.

Can I close a bank account with pending transactions?

You can close a bank account with pending transactions. But after the account is closed, any incoming transactions will be declined by your (old) bank.

The best way to ensure this doesn’t occur is to either wait to close your account until all pending transactions are complete, or contact the creditor and supply them with alternate bank details.

If you’re unsure whether you have any scheduled transactions, you can speak to a banking representative over the phone or via online support.

In most cases, your bank withholds the amount owing for pending transactions (such as online purchases).

Because the pending amount is deducted from your bank balance, you can close your bank account and the purchase will be honoured.

Do I need to open a business bank account?

Just because you’re in business doesn’t necessarily mean you need a business bank account. You could be a sole trader not registered for GST, and use your personal bank account for business.

If you do want a business account, there are plenty of benefits attached to business transaction and savings accounts, as well as business term deposits.

There are business bank accounts designed for businesses with a high volume of transactions, and those for start-ups with a small amount of trade. You could also include an EFTPOS service with your account.

Some business bank accounts charge for the number of transactions per month, while others offer a pay-as-you-go fee structure, where you only pay fees for transactions you make.

It’s up to you whether your priority is mainly transactions, or earning the maximum amount of interest on your principal. There’s a business banking solution for you if you need one.

Can you open another account at the same bank?

Yes, you can open another account at the same bank if you already have an account there, but some banks place a limit on how many specific accounts you can open.

Generally, though, it is possible to have more than one everyday account, one personal account and one joint account, or have different types of accounts – such as a transaction account and a savings account.

Keep in mind that some bank accounts come with fees, so you could be charged twice for having two types of the same account at the same bank.

Also, if you have more than one high-interest transaction account at the same bank, only one account will be able to earn the highest rate of interest.

Do you need a bank account to sell on eBay?

You don’t need a bank account to sell on eBay. But if you don’t have a bank account, you must provide either a credit card or debit card.

How do I close my bank account online?

You can usually easily open a bank account online, but you often can’t close it online.

Many banks and credit unions will only let you close an account if you go into a branch or call them on the phone.

However, some banks will let you request to close the account via your internet banking. Check your financial provider’s website for details.

Just remember: If you still have funds in the bank account, transfer them to another account, or withdraw the cash. Also, if you have any payments like direct debits going in or out of the bank account, these will also stop when you close your account.

How to transfer money to another bank account

Transferring money to another bank is often called a bank transfer, and it can be done a few different ways.

Customers generally need three pieces of information to transfer money to another bank account. Customers need the account name, BSB and account number of the account they wish to transfer money to.

One way of transferring money to another bank account is in a branch with the help of a staff member; they will often give you a receipt as well as confirmation of the transfer.

Transfers can be also made via internet banking and phone banking.

Some banks also allow customers to make transfers via partnered ATMs, especially if the account is with the same bank.

How do you delete your bank account from PayPal?

Deleting your bank account from PayPal is a simple three-step process:

  • Go to your Wallet
  • Choose the account you’d like to delete
  • Click ‘Remove bank account’

How do I open a bank account for a baby?

If you’ve just welcome a new baby into the world, congratulations. Opening a bank account for your child can be a wonderful first gift.

Before you can open your child an account, you’ll need to have a birth certificate or passport for your baby.

As the parent or guardian, you’ll also be listed as a joint holder on the account. This means you’ll need to have proof of your identification and address (a driver’s licence, passport, birth certificate or Medicare Card).

Many banks and credit unions offer baby banks accounts. Usually, you can apply online; otherwise you can head into a local branch or office with your documents.