Hi Team,

Back into the juicy topic of borrowing money, lets look at something that will greatly affect your ability to borrow into the future, your credit rating. For several years banks and other authorities have been collecting data on anyone that has a bank loan, credit card or any sort of credit account (ie mobile phone, power + gas accounts etc). This lending data is then provided to several "credit reporting agencies" who then maintain your personal credit rating. Whenever you want to borrow money, how much you can borrow and the interest rate you will be charged largely depends on your credit score

"It's easy to dodge our responsibilities, but we cannot dodge the consequences of dodging our responsibilities."   Josiah Stamp


Below is an extract from the ASIC moneysmart website that explains how it all works.

Credit scores

What does your credit score really mean?

Lenders look at your credit score or credit rating, which appears in your credit report, to work out if they should lend you money or give you credit. Here we explain how your credit score works and what you can do to improve it.

What is a credit score?

Your credit score is a number based on an analysis of your credit file, at a particular point in time, that helps a lender determine your credit worthiness. It is used by credit providers, such as banks and credit unions, to help them decide whether to lend you money, how much they will lend you and may sometimes influence what interest rate is offered to you.

From September 2018, the major banks and various credit providers will be putting additional information about the credit products you hold on your credit report. This will give a more complete picture of your credit history.

The new information will include:

• the type of credit products you have held in the last 2 years
• your usual repayment amount
• how often you make your repayments and if you make them by the due date.

You may find that your credit score has changed as a result. See how to get a good credit score for tips on improving your score. 

How is your credit score calculated?

Credit reporting agencies collect your financial and personal information and document it on your credit report. This information is then used to calculate your credit score, which includes:

• Your personal details (such as age and where you live)
• The type of credit providers you have used (e.g. bank or utility company)
• The amount of credit you have borrowed
• The number of credit applications and enquiries you have made
• Any unpaid or overdue loans or credit
• Any debt agreements or personal insolvency agreements relating to bankruptcy

What does my credit rating mean?

Depending on the credit reporting agency used to calculate your score, it will be a number between zero and 1,200 or zero and 1,000.

The number is rated on a five-point scale (excellent, very good, good, average and below average). The position of your credit score on this scale helps lenders work out how risky it is for them to lend to you: 

• Excellent - you are highly unlikely to have any adverse events harming your credit score in the next 12 months
• Very good - you are unlikely to have an adverse event in the next 12 months
• Good - you are less likely to experience an adverse event on your credit report in the next year
• Average - you are likely to experience an adverse event in the next year
• Below average - you are more likely to have an adverse event being listed on your credit report in the next year

How to find out your credit score for free?

You can get a free credit score from a number of online providers. The results may vary depending on which credit reporting agency is used. The following websites offer a free credit rating:

• Creditsavvy (Experian score)
• Credit Simple (illion, formerly know as Dun and Bradstreet score)
• Finder (Experian score)
• Getcreditscore (Equifax score)
• WisrCredit (Equifax and Experian score)

How to get a good credit score

Your credit score can increase or decrease over time depending on the information contained in your credit report. Your score can change even if your financial habits haven't. This could be due to a number of factors including:

• applying for a new loan or credit card
• a listing on your credit report expiring
• a change to your credit limit on an existing loan or credit account
• new information from a creditor
• closing a loan or credit card account
• late repayments

Improving your credit rating starts with looking at your current financial situation and looking for ways to improve it. As your financial circumstances improve your credit rating will improve. Getting into a good credit position before you next apply for a loan can help increase the likelihood of you getting approved.

You can improve your credit score by:

• lowering your credit card limits
• consolidating multiple personal loans and/or credit cards
• limiting your applications for credit 
• making your repayments on time
• paying your rent and bills on time
• paying your mortgage and other loans on time
• paying your credit card off in full each month

The good news is that as long as you have a good money management plan and you stick to it, your credit score should not detrimentally affect your ability to borrow money. However, something else that is a direct result of the Banking Royal Commission that could impact on your borrowing ability is Your "total credit card limit". If you own several credit cards, the banks now look at the total of all of your card limits and factor this into your loan serviceability (ie your ability to pay back the loan). So it pays to keep your credit card limits as small as possible, especially if you are looking to buy a house or investment property in the near future.

A friendly reminder from last week; your Team Meeting task = write down 3 or 4 KPI's for yourself and email them to me for review??

Thanks again for reading,
David.