Astute East Brisbane's Finance Insights

Drawing on his industry experience, Tony Duncan shares his thoughts on industry changes, home loan requirements and a number of important areas to consider when planning your first home purchase or your next property investment. 

  • Tony Duncan

Spend your way to a good credit score

Updated: Nov 5, 2020

Ever wondered what determines a good credit score? And if you've received a bad score, how you might improve it? Here, we share a few tips on how to develop a great credit report card through good financial habits that will set you up for your future.

If you're planning to buy your first home or if you're looking to upgrade your property, there are some important steps to be aware of so that when the time comes, you've set yourself up for a smooth finance approval process. Whilst you may not believe you're ready to make the move just yet, either through not having found the house or not having begun to plan your finances adequately, you may be interested to know what lenders consider a red flag and what could bode well for your financial story.


For many years now, Australians have held some of the highest household debt in the world.* This is not simply due to our love of owning our own home; it's also due to our tendency to access the equity in the rising value of our properties. Interestingly, the downside of increasing this debt means we're often more cautious with our everyday purchases. The onset of COVID-19 halted that spending further with some concern raised over our ability to withstand a recession.* According to HILDA, the survey of Household Income and Labour Dynamics in Australia, statistics show that countries with lower household debts fair better in a financial crisis due to their propensity for retail spending.


On the bright side, according to a September 2020 survey by McKinsey*, there has been a considerable shift recently in spending intent by Australians. Still cautious about the future, Australians are mindful of how they spend their money and are looking for ways to save, yet are also showing strong intent to purchase. Whilst this is important for the recovery of the economy, it's also a timely opportunity to look at how an individual's spending activity can really impact the ability to borrow for a home purchase. The goal here is to adopt and maintain healthy spending habits for a strong and sustainable financial future.


When it comes to seeking finance approval, aside from the salary you earn or the deposit you've saved, there is the question of your credit history that will likely be raised early on in your discussions with your mortgage broker. This credit score and report card is an assessment prepared by one of three registered third-party institutions that use a range of data about your spending habits to tell a story about your ability to pay bills and repay credit.

Essentially, your credit score sums up the information on your credit report into one number, including:

  • the amount of money you've borrowed (e.g., credit cards and other loans)

  • the number of credit applications you've made

  • whether you pay on time (bills and loan repayments)

The registered credit reporting agencies collect information from credit providers like banks, credit unions, store credit issuers, and payday lenders – including phone and utility providers.

At Astute, a common myth we hear is that it's beneficial to your financial circumstance to take out a credit card in your name so you can show a record of payments. The very nature of owning a credit card is a request for credit, which, in essence, works against the notion of good credit. If you do own a credit card, it's important to keep a close watch on it to ensure that all the information is correct.


To help provide clarity around what contributes to a credit score, we've taken a look at several factors that contribute to a bad credit score;

Red Flags

  • Missed payments or late payments of your utility bills

  • Too many credit card applications or inquiries

  • Negative information recorded against your names such as defaults, bankruptcies, and court judgments

  • Employment history and length of time in your current residence

Fortunately, if you're in this situation, there are a few steps that you could take to help improve your score.


Tips to improve your credit card score

  1. Pay your loans and bills on time.

  2. Consider setting up direct debits and schedule loan repayments for your payday.

  3. Keep track of your credit commitments.

  4. Do your homework before applying for credit. Making several applications within a short space of time will be recorded on your file and is not always looked upon positively by lenders, as it may be an indicator that you're in credit stress.

  5. If you move house or update your contact details, notify lenders.

  6. Advise lenders, phone, and utility providers of your new email or physical address so they can re-direct bills to your new address. If you don't pay these bills, a credit infringement or overdue debt could be listed on your credit report.

Keep track of your credit record.


Proactively manage your personal credit report by regularly checking your credit report. You can obtain a free credit report each year. You could also consider signing up for a monthly subscription to get your Equifax Score and monitor changes on your Equifax credit report through credit alerts.


Communicate with your credit provider


Importantly; if you're having trouble making a payment on time, talk to your credit provider before the due date passes so an alternate plan can be put in place.


What does my credit score/ report look like?

Your credit score, as detailed in this infographic by Equifax, will be a number between 0-1200. The higher the number, the better your credit score, which is true across all credit providers.

The credit report is a breakdown of the underlying data used to contribute to your credit score.

When it comes to an applicant's assessment, some lending institutions will focus heavily on the score itself and others on the report's data.

What does it mean to have a bad credit score?

In some cases, a financial lender will be reluctant to lend the amount of money you're looking for. Alternatively, you could also be impacted with a higher interest rate or be provided less flexible terms as the bank categorises you as a higher risk customer.


What's next?

If you're planning to buy a house, we recommend that you contact us as early as possible to assist with the planning process and advise steps to help you improve your overall credit score and help you get into the new home that you want.


a man mowing the lawn outside his new home
Secure a new home sooner by improving your credit score

References


https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/survey-australian-consumer-sentiment-during-the-coronavirus-crisis#

https://f.hubspotusercontent20.net/hubfs/511279/What%20really%20goes%20into%20a%20Credit%20Profile%20-%20Equifax..pdf

https://www.equifax.com.au/personal/help-centre/credit-scores/improve-your-credit-score

https://www.abc.net.au/news/2019-10-18/household-debt-leaves-australians-working-longer-spending-less/11608016

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General Advice Warning: This communication contains general information only and in no way constitutes the provision of professional advice, nor should it be relied on as a substitute for financial, credit, accounting, legal or other professional advice. We have not taken into account your financial situation, investment objectives or particular needs.  Before making an investment or financial decision, a person must seek appropriate independent professional advice and also consider whether this information is appropriate to their needs, objectives and circumstances. The author as well as their representatives, agents and employees give no guarantees and make no representations, express or implied, as to the accuracy, currency, completeness or suitability of the information contained in this document. Nor do they accept any liability whatsoever as a result of any information herein being incorrect, incomplete or unsuitable or as a result of a person in any way using or relying on the information herein


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