What is your credit score and why does it matter in Australia?
Your credit score is one of the ways lenders such as banks and credit unions determine whether to lend you money or not. It’s also used to dictate what your interest rate is, what loans are available to you and how high risk you are. Whether you want a home loan, are applying for a rental property, credit card, loan or anything else relating to money, it matters! I use affiliate links on my site. Read the full disclosure here.
My credit score jumped 87 points in May and I have NO DEBT!
One thing I hear a lot is how you must have a credit card, loan or other debt to get a high credit score. Yes, credit and paying it off helps show you are worthy of lending to. Loads of applications will reduce your score and having debt reduces how much you can borrow.
I have been debt free since 2016! October 2016 I cleared my debt and my score dropped from 753 to 729. I have wanted to get into the 800’s for a long time and was so excited to see it today. My score sat at 729 from October 2016 until May 2018 where it now jumped to over 800! The average credit scores for each state are all in the 600’s or 700’s (depending on whose research you use.)
What did I do differently to increase my score?
Honestly, I think the biggest difference was I have been in one place for over a year now and all rent, utilities etc are in my name, paid on time by direct debit. I carry no debt, I don’t have a credit card and have a pretty strict budget.
Between 2012 and 2014 I moved a lot, got a divorce, changed my name legally and it was all pretty messy. At that time, my score tanked and it was terrible, literally in the 500’s. In 2015, I got a personal loan for some legal and medical expenses. Being in debt was suffocating for me, but due to major health issues including paralysis and multiple surgeries, I was stuck with it longer than anticipated. October 2016, around 18 months after I got the loan I managed to pay it off. I vowed to never get another personal loan and to push my credit score into the 800’s.
From 2016 to May 2017, I lived with someone else and my name wasn’t on the lease or any bills. My score stayed fairly level except for the dip when I paid off my loan. In May 2017, I got a place again in my name with all the bills in my name only as it was for my daughters and me. I have been here over 1 year now which is the only thing to have changed.
I cannot see anything in my report to cause the jump but I am excited by it!
How do you check your score?
Credit Savvy is the site I use to track my score and have for years. Each month they email me an update and this month I was psyched to hear it went up so clicked through immediately. I can log in anytime to see my score as well as a summary of my credit report, tips to improve my score and their customer service is great.
You can get a full credit report for free in Australia once a year as well. Here is the government site with free information. A full credit report shows what credit you applied for, any defaults, debts etc. It is much more involved than your credit score and worth checking annually to ensure all is well.
What else can I do to improve my finances?
Knowledge is power! Knowing what your financial situation is will help you so much. On top of checking my credit score each month, I track my net worth. What’s ‘net worth’? It’s basically all your assets such as the home you own, investments, shares, savings etc minus all your liabilities such as debt. Use this post for more information on how to work out your net worth and this post for tips to increase it.
At the start of this year, I set a goal to double my net worth (you can find my goals at the end of this post). I achieved this in February, inadvertently, due to a business investment. I’ll be sharing more about the specifics of how I invest, how I spend my money and what I do. To give a few ideas, I use Raiz instead of a high interest savings account until it’s big enough to invest in a larger parcel of shares. You can get $2.50 when you join Raiz here plus can read why I do it here.
Why do I track my net worth and credit score?
It’s important to me I know what my money is doing. My goal is to retire at 40 if I want to (though I probably won’t). My lifestyle is flexible because of what I have chosen to do for work and how I invest my money. I want this lifestyle to continue so it’s important I know what my money is doing. If you want to be a millionaire, which anyone can do, you need to tell your money where to go. Check out this post about how to become a millionaire, even as a single mum!