Are you curious about what affects your credit score? Understanding the big factors that impact your credit score is important to manage your financial well-being. In this blog post, we will describe the various human habit that directly influences your credit score.
Your financial history is represented by your credit score, indicating how you have managed credit in previous and current instances. In the event of any mistakes or enduring challenges that have negatively impacted your credit, you might be interested in methods to repair it.
Numerous individuals in Australia remain unaware of the factors that influence their credit rating. Given that a favourable credit score significantly contributes to obtaining a personal loan, it is crucial to understand the elements that either enhance or damage your credit score.
Things that positively affects your credit score:
1. Diversifying your credit portfolio
Expanding the range of your credit accounts can have a positive effects on your credit score. By incorporating a variety of credit types, such as credit cards, mortgages, personal loans and even vehicle loans, you showcase your ability to manage multiple repayment responsibilities concurrently. This diversified approach provides lenders with a comprehensive view of your financial circumstances, enabling them to evaluate your assets and determine your competence in handling financial obligations.
2. Meeting repayment deadlines
Consistently ensuring timely payments is a crucial strategy for improving your credit score. Any instance of missed payment, no matter how small, can have a substantial negative effect on your credit rating and affect your ability to borrow funds from a particular lender. Having missed payments, regardless of it being even just 1, can mean you don’t fit a lender’s credit criteria.
3. Limit applying how often you apply for credit and new accounts
Frequent credit applications can raise concerns for lenders, signalling potential financial strain. While opening accounts is necessary for building credit, it’s advisable to limit the number of applications. Each inquiry has a small impact, and multiple inquiries compound the effect; shopping around and applying can have its consequences. Opening new accounts reduces the average account age, which can hurt scores. However, rate shopping for specific loans within a short timeframe is generally better done through a broker, as they can asses your
4. Pay your Bills on Time:
Try to make the early payements of your credit bills. This will have positive effects on your credit rating. Even a single late payment of even a single dollar ($1) reflect on your credit check and you will have less credit score. So, paying all the credit due on time will positively affect your credit history.
Things that can negatively affects your credit score:
1. Paying your bills late
Making late payments on your credit bills can have a negative affect on your credit rating, as even a single instance of late payment can be recorded and reflected on your credit report for a duration of up to two years. These bills can be your mortgage payment, car loan, credit card or any other form of credit you have. Most are report to a credit reporting agency;
2. Court judgements
Court judgments listed on your credit report can flag you as a higher risk, negatively impacting your credit score for a duration of five years from the judgment date.
Similarly, filing for bankruptcy can lower your credit score, with the bankruptcy record remaining on your report for either five years from the bankruptcy declaration date or two years from the discharge date.
4. Making too many credit enquiries
Regularly applying for credit can raise red flags for lenders, indicating possible financial difficulties. While establishing credit accounts is important for building a credit history, it is recommended to minimize the number of applications. Each credit inquiry has a minor negative result, and the cumulative effect of multiple inquiries can be significant.
5. Missing ‘Buy Now, Pay Later’ payments
When you default on your ‘Buy Now, Pay Later’ (BNPL) payments, it can have a detrimental effect on your credit score. Most BNPL providers report any instances of missed payments or default to credit reporting agencies, which can significantly shape your creditworthiness. As a result, lenders often take this information into consideration when evaluating loan applications and determining the applicable interest rates. While we understand that unforeseen circumstances can lead to missed payments, it’s important to be aware of the potential consequences on your credit standing and borrowing costs.
At ezpz Finance, our dedicated team is ready to provide guidance and support for your financial journey, regardless of your circumstances. Don’t hesitate to contact one of our knowledgeable brokers, who will assist you in making informed decisions and ensure a hassle-free finance experience tailored to your needs.