10 Common Credit Score Myths Debunked

Blowing gold confetti glitter, blog image for WisrCredit

No matter how financially savvy you think you are, chances are you might be guilty of believing a few credit score myths. (Don’t worry, we get the whole thing can be a little confusing too.) Here are a few of the most common misconceptions that we’re debunking:

1) Not having any debt means you have a good credit score.

If only it were that simple! It’s like looking at a blank resume of a candidate applying for a job, having no credit history is not necessarily a good thing. Part of your credit score is actually based on the quality of your repayment history, to see if you’re credit worthy. That’s why it’s important to prove to lenders that you’ve been responsible in the past and can be trusted with credit. That doesn’t mean you need to take on debt, having a mobile phone on a plan or being on a utility bill can also help you build a credit rating.

2) Every Aussie has one credit score.

False. In fact, most Aussies have multiple credit scores (in some cases more than 3). In Australia, there are three main credit reporting bureaus who have their own algorithms and credit scoring systems – which is why we have so many scores. It’s important to be across all of them because different lenders may preference one bureau over another. Fun fact: WisrCredit is the only website where you can compare multiple credit scores in one place.

3) Checking your credit score will hurt your score.

Short answer: no.

There are two types of credit enquiries which are categorised as either hard or soft. A hard enquiry occurs when a lender requests your credit score with the intent of assessing whether or not they should lend to you. This impacts your credit score.

A soft enquiry, on the other hand, is when you or an agent on your behalf simply seek out information about a credit score, without the intent of applying for any credit. WisrCredit makes a soft enquiry with participating credit reporting bureaus, which means it performs a touch on your credit file, but it does not impact your credit score. In fact, knowing your credit score makes you look responsible!

4) Getting married will merge your credit scores.

Your relationship might be until death do you part — but don’t worry, your credit score isn’t. You and your spouse will continue to have entirely separate credit scores even after you tie the knot. But, keep in mind that any joint account activity will reflect on both of you.

5) Using ‘buy now, pay later’ services will negatively affect your credit score.

Buy now, pay later services such as Afterpay, Openpay and Zip Pay are handy tools that let you pay purchases off over time. Keep in mind that not all pay later providers assess your creditworthiness when you sign up. That means you could end up with bills that you can’t pay off, resulting in a hit to your credit score and difficulty borrowing in the future. 

6) You need to have a high income to have a good credit score.

You know the phrase, “the more you have, the more you spend?” As far as we’re concerned, it’s all relative. Having a high income doesn’t necessarily make you any more responsible or financially stable. While steady employment does play a role in your credit rating, your actual income bracket is not a direct input factor.

7) You need to go into debt to build a good credit score.

The key phrase here is: into debt. Yes, you may need to demonstrate some credit behaviour such as showing that you’re capable of obtaining credit and paying off debt, but that can be a small amount – for example, a monthly phone bill. Remember, a credit score is a reflection of your credit history such as your credit enquiries and repaying your commitments, so staying on top of your payments, and limiting the number of credit enquiries you make, are also good ways to maintain a good credit score.

8) The more debt you have, the lower your credit score is.

We’re busting this one because not all debt is equal. There is good and bad debt, and your credit score reflects this. An example of good debt may be a home loan because that is seen as a healthy financial investment. Bad debts, on the other hand, could be $20K on a high-interest credit card, or even a $200 loan from a ‘payday’ lender. If you’re in debt because of a recent home purchase, you won’t necessarily have a poor credit score. As long as you pay your bills on time and are a responsible borrower, you’ll be just fine.

9) A ‘bad’ credit score means you will never get approved for credit.

The interesting thing about credit scores is that they can change. If your score isn’t where you want it to be, there are steps you can take to get it in better shape. These can be as simple as paying your bills on time or closing unused credit cards. Check out WisrCredit Bootcamp for more tips.

10) A credit repair company can improve your score.

In the majority of cases, a credit repair company can’t do anything that you’re not capable of. You are essentially paying them to do simple research for you. If you’re more of a self-starter, you can save yourself some money and take control of your finances yourself. Here are a few ways of going about it if you need a place to start.

 

Disclaimer: This article contains general information only, and is not general advice or personal advice. Wisr Finance Pty Ltd does not recommend any product or service discussed in this article. You must get your own financial, taxation, or legal advice, and understand any risks before considering whether a product or service discussed in this article may be appropriate for you. We have taken reasonable efforts to ensure that the information is accurate at the time of publishing, but the information is subject to change. We may not update the article to reflect any change.

What is a ‘good’ credit score?

Wrapping your head around credit scores and credit reports can be daunting at first. How is your credit score calculated? When does your credit score update? And most importantly, how do you rank? We’re here to break down credit scoring and get real about your finances so you’re in the know, and a little bit wiser.

Let’s start with the basics.

What is a credit score?

A credit score or credit rating is a numerical score that represents how trustworthy your reputation is as a borrower.

Essentially, your credit score sums up your financial history or ‘credit behaviour’ (ie. times you’ve paid bills late or if you’ve ever defaulted on a payment) into one number that indicates how trustworthy you are. Lenders, banks, and insurers may use this information to decide if they will lend out money, as a credit score is an indication of how likely they are to be paid back and paid on time.

Where does your credit score come from?

Credit Reporting Bureaus (CRB).

Australia technically uses four credit bureaus:

1. Equifax

2. Experian

3. Illion

4. Tasmanian Collection Service

Let’s focus on the first three (sorry, Tassy). Below is a quick summary of how each CRB categorise their credit scores*.

What factors contribute to credit scores?

A bit like the Colonel’s 11 herbs and spices blend, credit bureaus aren’t one to reveal their secrets. Nobody knows the exact recipe each CRB uses, but it essentially comes down to a few key factors.

  • Recent credit behaviour & enquiries
  • Repayment history
  • Length of payment history
  • Type of credit
  • Debt burden

What is a good credit score?

The bands used by the CRBs are a pretty good place to start when assessing how good your credit score is. That’s because they take into account credit scores across the total credit active population. Credit scores are used and viewed by different lenders in different ways, however an easy way to look at it is – the higher the score the better.

The thing to remember is that your credit score can change over time and how it changes is over to you.

How long does a ‘bad’ credit score last for?

Let’s start with the good news. Your credit score is always changing based on your financial behaviour which means you can actually improve your score with some good behaviour. The not-so-great news is that defaults and ‘bad’ marks against your credit score can stay on your file for 5-7 years.

Staying on top of your credit standing is important so you can feel confident knowing that you have access to funds when you need it. WisrCredit Bootcamp can give you a step by step guide to get on top of it starting today.

Credit scores come down to responsibility. Being conscious of staying on top of your payments and checking your credit score regularly can help you maintain a good, healthy credit rating.

Positive Credit Reporting

Positive Credit Reporting, also known as Comprehensive Credit Reporting (CCR) has been around for 4 years in Australia. It essentially means that lenders can see more data in your credit report so they can better assess a borrower’s true credit position and their ability to repay a loan.

Why are we telling you this? The benefit of lenders having more comprehensive info about your credit standing means that lenders can make more informed decisions based on your credit behaviour. Having more certainty around your ability to pay back a loan could result in lower interest rates and better financial products. So working hard to keep your credit score in good condition is more important than ever.

How can you find out your credit score?

You’ve come to the right place. Use our free WisrCredit tool to get both your Equifax and Experian score in minutes and in one place.

👇

If you want to get Wisr about your credit position, check your credit scores for free!

 

Disclaimer: This article contains general information only, and is not general advice or personal advice. Wisr Finance Pty Ltd does not recommend any product or service discussed in this article. You must get your own financial, taxation, or legal advice, and understand any risks before considering whether a product or service discussed in this article may be appropriate for you. We have taken reasonable efforts to ensure that the information is accurate at the time of publishing, but the information is subject to change. We may not update the article to reflect any change.