Building your credit profile

Building your credit profile

Convincing a bank to lend you their money is never an easy tasks but a necessary one. Whether you’re after home loans, credit cards or personal loans, you’re going to need a good credit report that will support you in your application for finance. 

It’s a little concerning then, when the latest report from credit reporting agency Veda showed over 2 billion worth of credit applications were deemed as being high-risk in the past financial quarter alone.

The report highlighted that red-flagged applications had grown 52 percent in the past two years – a scary fact for those legitimate borrowers who are looking to apply for a loan.  

So we contacted Veda directly to get a few tips from them on how best to build your credit profile in this high-risk lending environment.

Build a credit history

Getting yourself a credit card is a simple way to kick off your personal credit report. Companies will use your history with credit cards to judge how well you will deal with debts in the future. You don’t want to go off the rails, spending with reckless abandon. Instead, use the card responsibly and demonstrate that you can be trusted with such an instrument. 

Make sure you’re paying off the balance regularly to keep interest at bay. Not only will this show that you can be trusted with payments, but it will help you keep the overall repayment costs down too.

Belinda Diprose, marketing manager of credit reporting agency Veda, advised, “Only apply for credit if and when you need it. Credit comes in many forms, from credit cards, phone contracts and interest free loans.”

Be diligent with all payments

The fact is, from the moment your name is attached to any type of finance, it could affect your credit score. As soon as your name starts appearing on the bills, making mistakes can start to cost you.

“Paying your personal loans, mortgage, and credit cards on time does matter, so consider setting up direct debits and have loan repayments scheduled for your pay day,” Diprose suggested.

Pay off those debts

If you’re at the step of looking at home loan comparisons, it’s likely you’ve already got a few debts of various sizes to take care of. Try to pay these off so you have fewer outgoings. Put the smallest debts or your debts incurring the highest interest rate charges at the top of the priorities list and see if you can eliminate them once and for all.

And remember, if you need help don’t forget to ask for it.

“If you are in financial difficulty talk to your credit provider, they can possibly assist you,” Diprose said.

Don’t over-apply for credit

One mistake that can affect a borrower’s credit report is applying for credit with too many lenders.

“Making a number of applications in a short space of time could be an indication you’re in credit stress,” Diprose advised.

“Do your research to compare providers before making your application for credit.”

Check your own credit report

If you want to know the state of your credit report – before the lenders – order your own credit report.

A credit report and rating can be obtained online at Veda by providing your full name, date of birth, driver’s license number, current and previous address and forms of identification to help them collect your credit history. In most cases, you will be entitled to this report for free.

Avoid silly credit defaults

Moving house? Don’t overlook the mandatory change of address notifications.

“Advise lenders and utility providers of your new address so they can re-direct bills,” Diprose said.

Otherwise you could run the risk off not receiving your bills, which could put you in the red and in credit strife. 

Whatever your loan requirements, your credit report is a vitally important part of the lending process, so make sure you do your best to follow these steps so that nothing is holding you back from reaching your financial goals.

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Learn more about credit cards

Do you need a credit card to get a loan?

You do not need a credit card to get a loan, but you usually need to have a credit history. Without a credit history, a financial institution cannot assess your ‘credit worthiness’, or your capacity to pay off the loan.

If you don’t have a credit card, your credit history can reflect any record of paying off an asset. Without any credit credit history, you’re limited in the type of loans you can apply for. But you may be able to obtain a secured loan against an asset. For more information on improving your credit score, go here

How easy is it to get a credit card?

For most Australians, there are no great barriers to applying for and getting approved for a credit card. Here are some points that a lender will consider when assessing your credit card application.

Credit score: A bad credit score is not the be all and end all of your application, but it may stop you being approved for a higher credit limit. If your credit score is less than perfect, apply for the credit limit that you need, rather than the one you want.

Annual income: Most credit cards have minimum annual income requirements. Make sure you’re applying for a card where you meet the minimum.

Age & residency: You need to be at least 18 years old to apply for a credit card in Australia, and most require that you are an Australian citizen or permanent resident. However, there are some credit cards available to temporary residents.

How do you use credit cards?

A credit card can be an easy way to make purchases online, in person or over the phone. When used properly, a credit card can even help you manage your cash flow. But before applying for a credit card, it’s good to know how they work. A credit card is essentially a personal line of credit which lets you buy things and pay for them later. As a card holder, you’ll be given a credit limit and (potentially) charged interest on the money the bank lends you. At the end of each billing period, the bank will send you a statement which shows your outstanding balance and the minimum amount you need to pay back. If you don’t pay back the full balance amount, the bank will begin charging you interest.

What should you do if your credit card is compromised?

Credit card fraud is a serious problem. If your credit card is compromised and you’re wondering what to do, here are a few precautionary steps to take.

Contact you credit provider – Get in touch will your credit card provider. If you feel your card has been compromised, you should be able to lock or block it.

Monitor your accounts – Keep an eye on your credit card accounts. Any unauthorised transactions could be a sign your credit card has been compromised.

Check your credit rating – It’s also important to check your credit rating, to ensure you’re not a victim of identity theft or some other financial mischief.

How do credit cards work?

Think of credit cards as a short-term loan where you use the bank’s money to buy something up front and then pay for it later. Unlike a debit card which uses your own money to pay, a credit card essentially borrows the bank’s money to fund the purchase. When you apply for a credit card, the bank assesses your income and assigns you a credit limit based on what you can afford to pay back. At the end of each billing cycle, which is usually monthly, the bank will send you a statement showing the minimum amount you have to pay back, including any interest payable on the balance.

How to get money from a credit card

You can get money from a credit card, but generally it will cost you.

Withdrawing money from a credit card is called a cash advance, as it operates more as a loan than a simple cash withdrawal. Because it is a loan, you may be charged interest on your cash advance as soon as you make the withdrawal. Interest rates are also usually much higher for cash advances than standard credit card purchases.

In addition to the interest rate, you may also be charged a cash advance fee. This could be a flat rate, or a percentage of your total cash advance. If you are considering a cash advance, make sure to add up how much it will cost you before committing.

What should you do when you lose your credit card?

Losing your credit card is a serious situation, and could land you in financial trouble. Here is a simple guide detailing what to do when you lose your credit card.

Lock you card – Contact your provider and inform them about your lost credit card. From here lock, block or cancel your card.

Keep track of transactions – Look out for unauthorised credit card transactions. Most banks protect against fraudulent transactions.

Address recurring charges – If your card is linked to recurring charges (gym membership, rent, utilities), contact those businesses.

Check credit rate – To ensure you’re not the victim of identity theft, check your credit rating a month or two after you lose your credit card.

How long does it take to get a credit card?

There are a few stages you need to go through to get a credit card; each one takes a different length of time.

Applying for the card online, over the phone or in person is the fastest step. This usually takes around 15 minutes, provided you have all of your documents handy.

After submitting your application, it usually takes between one to 10 business days for the lender to assess your eligibility. Some lenders offer instant approval, although you will need to send supporting documents before it is official.

Once your application has been approved, expect to wait between one to 14 days to receive your card in the mail. Keep in mind that delays can happen during busy periods, such as if the lender has launched a special deal.

What is a credit card?

A credit card is a payment method which lets you pay for goods and services without using your own money. It’s essentially a short-term loan which lets you borrow the bank’s money to pay for things which you can pay back – potentially with interest – at a later date. Credit cards can also be used to withdraw money from an ATM, which is known as a cash advance. Because you’re borrowing money from a bank, credit cards charge you interest on the money you use (unless you repay the entire debt during the interest-free period). When you apply for a credit card, the bank gives you a credit limit which sets the maximum amount you can borrow using your card. Credit cards are one of the most popular methods of payments and can be a convenient way of paying for goods and services in store, online and all around the globe.

How do you apply for a credit card?

You can apply for a credit card online, over the phone or in person at the bank. Once you’ve compared the current credit card offers, the application process is quick and easy. Before you get your application started, you’ll need to gather your personal information like proof of ID, payslips and bank statements, proof of employment and details of your income, assets and liabilities. To be eligible for a credit card, you’ll need to be an Australian citizen over 18 and earn a minimum of $15,000 each year. Once you’ve applied for a credit card, you should get a response fairly instantly. If your credit card application has been approved, you should receive a welcome pack with your new credit card within 10-15 days.

How to pay a credit card

There are a few ways to pay a credit card bill. These include:

  • BPAY - allows you to safely make credit card payments online.
  • Direct debits - set up an automatic payment from your bank account to pay your credit card bill each month. You can choose how much you want to pay of your credit card bill when you set up the auto payments.
  • In a branch.
  • Via your credit card provider's app.

How do you pay off credit cards?

The best way to pay off a credit card bill is to set a realistic spending budget and stick to it. Each month, you’ll get a credit card statement detailing how much you owe and how long it will take to pay off the balance by making minimum repayments. If you only make the minimum repayments, it will take you years to pay off your outstanding balance and add extra costs in interest charges. To avoid any extra charges, you should pay the entire bill. 

Monthly repayment

This is how much you can afford to pay on a monthly basis off your credit card. You can enter any amount you wish; but to make the balance transfer worthwhile the default is $200.

Are there credit cards for students?

Yes, there are credit cards available with students in mind. These can help young Australians to build their credit report and learn crucial life skills around budgeting and managing personal finances.