When it comes to credit scores, Australia is somewhat behind.
There’s just so much we don’t know about this mysterious number – how it’s calculated, what role it plays in our ability to secure credit, the cost that’s attached to thiscredit as a result.
Taking a step back even further, many of us aren’t even aware of what our own score even is at any given point. And this is despite the fact that our credit score can impact some of our largest financial decisions, such as buying a property and securing a personal loan.
A generational game
The millennial generation may be in a somewhat unique position when it comes to the lack of awareness surrounding credit scores. Many members of this generation may not yet have made significant financial decisions, so may be able to get ahead before any mistakes have been made that could impact their score. To take advantage of this situation, it’s crucial that this generation becomes better educated on what a credit score is, and how it can affect their financial future.
After all, to get ahead of the game, it’s necessary to first understand how to play it.
The pros and cons of research
The millennial generation is growing up in a world of accountability. If they want information, they can find it quickly and easily online. They can perform intense research on any business before they hand over their hard-earned cash. And as a result, they are able to demand honesty and forthrightness from businesses.
However, what many Australians don’t know is that unfortunately doing your research isn’t always beneficial when it comes to your credit score. Performing research on which bank loan is best for you, as an example, could negatively impact your score without you knowing. This is because if you apply for a loan at one bank, and then immediately look at another as part of your due diligence, the credit score algorithm assumes you were rejected by the ones you already searched.
Information on how to improve your score also isn’t readily available, as there aren’t many financial institutions that find it important to help consumers improve theirscores. Further to this, a lot of positive financial activity performed by the borrower isn’t actually reflected in their score anyway.
These two factors leave many consumers not knowing know how to improve their score at all.
At MoneyMe, however, we think this is wrong. It’s why we use financial behavioural analysis to develop a 360-degree view of a customer. We want to know more. If someone is repaying their debts on time, we know they’re a good borrower, and they should be rewarded. We tell our customers – most of whom are millennials – what their score is, and how to improve it, so they’re not kept in the dark.
We have the tools to analyse consumer behaviour and provide rewards for responsible consumers. We believe it’s so important for millennials to take control of their own finances, and have greater financial opportunities as a result.
This is exactly how you can do that.
1. Having a score is better than none
Having credit in the first place will get you started. Until you have a history, you’ll be treated the same as everyone else, so it’s better to get started now.
Don’t do anything drastic, however. Start your credit footprint with something small like a mobile phone contract or a small loan, and make your payments in full and on time.
2. Don’t miss your payments
The current negative-based credit rating loves it when you don’t pay your bills because it’s one of the only sources of information it can get on you. So make your payments in full and on time, and make sure you never get reported for a missed payment.
3. Be smart in shopping for credit
While it’s difficult to comprehend, simply shopping around for credit options can hurt your rating. If you’re looking for a small loan, don’t shop around at five different creditproviders, because a credit check is run against you each time.
Be smart. Spread out your shopping or do your research before you make an application. Sometimes a simple phone call to different lenders will do the trick.
4. Get your score
Knowledge is power. You can’t start improving your score if you don’t have it at all. You may even find information on there that isn’t accurate, such as someone applying for a loan in your name. As soon as you notice that type of information, you can work to have it removed.
Remember, you own your credit score. Not the banks, not a company – you do.
This is part of the system we’re trying to change at MoneyMe by providing our customers with a transparent view of their credit score and how to improve it. Transparency is everything.
5. Protect your identity
Identity theft is real and fraud rates are high. Be careful with your information, including protecting computers on which you’ve purchased goods. Lock your mailbox at home, and always shred old documents.
Remember – having a better credit score is not only important for getting finance (a loan, a mobile phone contract, a car). It also means you’ll get better interest rates when you do borrow money. That’s definitely something that’s worth protecting.
Clayton Howes is the CEO of digital consumer finance firm MoneyMe. He’s an expert in personal finance as well as small business and start-ups.