Most adults and businesses will have a credit profile, whether they are aware of it or not. Having a credit card, an account with a telco or utilities provider as well as all types of loans and finance will trigger the creation of a credit profile. You don’t set up your own credit profile, it is established by the credit providers when you apply for or access credit. Many may not even know what their credit profile includes and yet this report can determine many life decisions.
If you’ve never taken much or any attention to your personal or business credit profile and you’re interested in applying for a loan and finance, then now could be a good time to give it the attention it deserves.
Definition
A credit profile or credit report is a listing of all the times an individual or business has applied for or held credit. This can include credit cards, loans and accounts with a wide range of providers. When an application for credit is received, the lender will report that event to the credit reporting agencies who enter it on the person’s credit report. Even requests to increase a credit limit on a credit card are reported. Negative issues are also reported such as late payments and defaults on loan repayments.
From these reports, the credit agencies calculate a credit score for the individual or business. This score is known as a credit rating and is used by lenders when assessing loan applications.
A credit score is calculated by taking into account:-
- How much money has been borrowed in loans, finance and on credit cards.
- How many loan or credit applications have been made.
- Payment history, specifically making payments as required on time.
Scores are a numerical value in the range of 0 up to 1,000-1,200 with a higher score the better. The higher end will depend on the scale used by the individual reporting agency. Calculations are based on a 5 point system – excellent, very good, good, average and below average.
The higher the credit score the less risky an applicant can be considered by lenders. The lower the score the higher the risk and less chances of being approved or getting the best loan deal.
Accessing a Credit Score
Individuals are entitled to receive a number of free copies of their credit report every 3 months. There are companies that advertise a fee to provide a copy of a credit report. Before jumping in for those services, it may be advisable to consider your free options first.
The Federal Government MoneySmart website provides information on where to access a free copy of your credit report. This information includes the contact details for several credit reporting agencies.
Building a Good Credit Score
Most individuals and businesses will depend on some form of credit or loan in their lifetime and having a good credit score can be critical to achieving the cheapest outcomes. Being aware of the actions that will impact your credit score may be helpful in building and maintaining a good credit score.
Paying bills in a timely manner is obvious but something a lot of people can overlook. Pay closer attention to the DUE DATE or set up auto pay systems with your bank so you don’t accidentally miss a payment.
If you’re looking to apply for a loan in the short or longer term, getting your existing debts under control or lowered may impact positively on your score. Another tip is to resist the temptation to request increases on credit cards unless absolutely necessary.
During the coronavirus pandemic many people have been under financial stress and may be or have sought whatever resources possible to get through the crisis. One option may have been to resort to credit cards and request a limit increase. Remember that credit cards have very high interest rates. Before going down that route, research all relief and support available to you through Government support measures. An alternative to using credit cards may be to consider a loan package to consolidate debt while providing a solution to ongoing situations. We may be able to assist you with that, so speak with one of our Jade Finance consultants.
We note that during the 2020 coronavirus crisis, banks and lenders advised that requests for loan deferrals due to the effects of the pandemic would not be reported negatively on credit reports.
When taking on business finance and/or personal loans, adhering strictly to the repayment schedule. When arranging finance, we typically set up direct debit facilities between our customers and lenders so the loan repayments are automatically deducted from the nominated bank account. Ensuring sufficient funds are in that account on the due date is a key responsibility for borrowers.
While there are negative issues to be aware of and avoid there are positive aspects to credit scores. By adhering to repayment schedules and containing credit limits, a positive score can be built up and maintained.
Impact on Loans and Finance
Credit scores are extremely important when applying for personal loans or business finance. Our banks and non-bank lenders will review the credit report and score as a normal part of the loan application process. It forms part of the risk assessment which can determine the interest rate offered or any conditions attached to the loan.
A good credit score will be viewed more positively by lenders and that means cheaper interest rates and an overall better loan.
Another important aspect to remember is that multiple loan applications made by individuals are reported and treated as a negative. By engaging Jade Finance as your lender, you have the benefit of covering off on multiple lender options to source the cheapest quote but our requests for quotes on behalf of clients are not negatively reported.
Depending on your age and financial situation, most people will be looking to take out some form of loan or credit in the future. It may be for that new car, to buy a caravan or boat, a motor bike or for business purposes. Keeping across your credit report and maintaining a good credit score can be vital to achieving the best loan outcome
Contact Jade Finance 1300 000 008 for a quote on personal loans or business finance.
DISCLAIMER: NO LIABILITY IS ACCEPTED IF ERRORS OR MISREPRESENTATIONS ARE FOUND IN THIS ARTICLE. THE ARTICLE IS PREPARED AND PRESENTED FOR GENERAL INFORMATIVE PURPOSES AND IS NOT INTENDED TO BE THE SOLE SOURCE OF INFORMATION FOR MAKING FINANCIAL DECISIONS. THOSE REQUIRING GUIDANCE AND ADVICE SHOULD CONSULT A FINANCIAL ADVISOR.
