A Guide to Checking and Understanding Your Credit

Credit reports, credit scores, soft and hard inquiries, debt-to-income ratios… it’s confusing out there, we know. We’re here to help you get wiser about your credit, which means understanding the basics through to being aware of new rules and legislation that affect credit reporting in Australia. 

It’s important to wrap your head around this stuff and build a healthy credit score because it can save you money in the long run and make it easier to secure funding when you need it most. 

How to understand your credit score 

Your credit score, put simply, is a number that demonstrates how well you manage your finances. It helps a lender determine how creditworthy you are. Credit providers such as banks and lenders use your credit score to determine whether or not it’s a good idea to lend you money, as well as how much money is safe to lend you. The score can also determine your interest rate

How credit bureaus calculate your credit score 

Each credit bureau collects your personal and financial information and details it on your credit report. They take all of this information and come up with your credit score. These factors include but are not limited to: 

  • Your personal information such as your name, address, date of birth, etc
  • Your total amount of credit already borrowed
  • The types of credit providers you’ve had experiences with, such as utility companies or banks
  • Whether or not you have any overdue, unpaid or defaulted credit or loans 
  • The amount of credit enquiries and applications you have on your record
  • Whether or not you have made debt agreements in the past, or any other agreements related to filing for bankruptcy

Australia has four main credit bureaus: Experian, Equifax, illion and the Tasmanian Collection Agency.

What your credit score means

Since each credit bureau uses a different scale to report your credit score, you’ll end up with a number from zero to either 1,000 or 1,200. Keep in mind that you may have multiple credit scores, and WisrCredit will present you with your Equifax and Experian score. Both scores use a five-tier grading system, covering categories similar to below average, average, good, very good and excellent. Where your credit score falls in this range helps financial institutions decide how risky it is to lend money to you. 

They include:

  • Excellent – An excellent credit score means that it is very unlikely that you will get into any trouble that could drop your credit score in the next year. 
  • Very Good – A very good credit score means that it is unlikely that you will get into any trouble that could make your score slip. 
  • Good – A good credit score means that it is slightly more unlikely than likely that you will get into trouble with your credit in the next 12 months. 
  • Average – An average credit score means that it is likely that you will have issues with your credit in the next year. 
  • Below Average – A below average credit score means that it is extremely likely that you will get into trouble in the next year.

How to check your credit score 

Did you know that you can check your credit score for free, and as often as you want? One of the fastest and easiest ways to get your credit score is to use WisrCredit

You only need to provide limited information such as your full name, date of birth, drivers licence so we can ID you and some additional personal information such as your living arrangements.

Get your info ready and give it a crack! 

How to build good credit 

Building your credit isn’t something that will happen overnight, but don’t let that get you down. You can take small steps over time to improve your score. Change starts with understanding your score and its movements.

Your credit score can fluctuate depending on your activities. In some cases, your score can change even if you haven’t done anything at all. Weird, right? Factors that could cause your credit score to rise or drop include: 

  • You applied for credit cards or a new loan
  • Something expired and fell out of your credit reporting period
  • Your credit limit changed on a credit card or loan 
  • You closed out a line of credit or loan
  • A creditor added some new information 
  • You fell behind and made late payments
  • You defaulted on your payments 

To improve your credit score, you want to take a good, hard look at your financial situation. You can identify problems and look for ways to fix them. Once you get a hold of your finances, your credit rating should go up. The more it goes up, the more likely you are to be approved for your next credit card or loan. Other things that can help you raise your credit score include: 

  • Consolidating multiple credit cards or loans onto one credit card or loan
  • Limiting how many times you apply for credit in a two-year period
  • Lowering the amount of money you spend out of your available credit
  • Making all of your payments on time or before the due date
  • Paying your rent on time
  • Paying your mortgage payment on time
  • Paying your credit card balance off in full each month (this also helps you avoid interest charges)

How Comprehensive Credit Reporting (CCR) affects your credit scores

Banks are now required to add more information to your credit report thanks to Comprehensive Credit Reporting (CCR). This helps lenders see the bigger picture in regards to your credit history so they can make more informed decisions. 

The newest additions to your credit report include: 

  • The types of credit lines you’ve opened in the past two years
  • The amount of money you are repaying 
  • Your repayment history over the last two years

Are you ready to get your credit moving in the right direction? Check your score.

Disclaimer: This article contains general information only, and is not general advice or personal advice. Wisr Services 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.

 

5 Solid Reasons to Know Your Credit Score

Most people don’t think about their credit score until it’s too late. Maybe you tried to apply for a vehicle loan or a credit card and the lender turned you down. Or, you applied for a home loan and were told you’d have to pay a higher rate due to your poor credit… #feels. 

Here are a few reasons to keep on top of your credit so you can avoid similar blows in the future. 

Defining a Credit Score

Let’s recap. Your credit score is based on several factors, such as your personal information, enquiry history, repayments, existing lines of credit and more. Simply put, your credit score is a numerical representation of how responsible you are with credit. Lenders look at all of this information when considering you for a personal loan, mortgage, credit card or another line of credit to decide whether or not you’re an acceptable risk. 

How is your credit information recorded?

Who keeps tabs on all this financial information? Your work? Banks? The government? Nope, a credit bureau. In Australia, there are technically four credit bureaus. When you’re a customer of a business that provides credit, they are bound by an agreement to send your transaction information to the credit bureaus. The credit bureaus use this information to update your credit score accordingly. Loan or credit card activity updates every month – which is why it’s a good idea to check it on a regular basis.

More reasons to check your score…

At the very least, you should make it a priority to check your credit score at least once a year. If you’re feeling super-duper responsible, you can check it every month. WisrCredit is a completely free platform that lets you check multiple scores (yes, you have multiple) whenever you want, without any dings to your credit file.

  1. Give yourself something to build upon

Knowing exactly where your credit score stands can give you a solid foundation to start building from. It will also give you a good idea of which financial avenues are available to you since most lenders only accept credit scores within a certain range. Once you know how you rank, you can take steps to improve your credit score if needed.

  1. Protect against fraud

Okay, touch wood this doesn’t happen, but when credit card fraud or identity theft occurs, you need to act quickly. The longer you delay reporting the crime, the harder it becomes to secure a conviction. Checking your credit score on a regular basis can help you catch any fraudulent transactions almost instantly. This will in turn help to minimise any damage such activities do to your finances. 

  1. Improve accuracy levels

Your credit report can include inaccuracies that drag your credit score down through no fault of your own. If you check your score and it is much lower than you expected, go through your report carefully and thoroughly. You should report inaccurate information to the credit bureau so they can remove it from your credit report.

  1. Minimise enquiries

When you apply for a loan, mortgage or a credit card, the lender will do a soft or hard enquiry on your credit report. Lenders don’t generally like to see too many hard enquiries on your record, and they stay on your credit report for two years. Knowing your credit score (a soft inquiry) means you can be more realistic about applying for credit, minimising the need for too many enquiries. 

  1. Quick responses to changes 

Maybe you’re not entirely sure what causes your credit score to fluctuate. Monitoring your credit score lets you see what can factor into those changes. For example, it may drop a few points if you use too much of your credit card balance. Knowing this helps you correct your behaviour and helps your credit score even out.

Ready to check your credit score? Get it done here.

Disclaimer: This article contains general information only, and is not general advice or personal advice. Wisr Services 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.

So, what is Comprehensive Credit Reporting (CCR)?

It’s officially July! You know what that means. Chilly weather, faux Christmas parties, and you guessed it, Comprehensive Credit Reporting. Okay, you might not be as excited about the latter as we are — but it’s worth being across since your finances are about to be impacted.

What is Comprehensive Credit Reporting (CCR)?

Comprehensive Credit Reporting (CCR) — also known as Positive Credit Reporting — means that banks and lenders can now see more data in your credit report when deciding whether or not you’re able to repay a loan or other lines of credit. 

That sounds a little bit scary, but it’s actually a pretty good thing.

Up until 2014, lenders had limited access to your credit history. They could only see whether you had any negative information (ie. credit enquiries, overdue debts, defaults, bankruptcy etc) on your credit report. This focus on negative actions made it harder for people with good credit to be seen as trustworthy borrowers since lenders only had access to limited information. 

Now, positive aspects of your credit report are being added—hence the name Positive Credit Reportingto give banks and other lenders a bigger picture of your finances. 

With CCR coming into effect, the newest additions to your credit report include:

  • The types of credit you’ve opened in the past five years
  • Up to 24 months of repayment history
  • Dates credit accounts were opened and closed
  • The credit limits for credit cards and values of loans obtained

Still with us?

The benefit of lenders having a deeper understanding of your credit history means that they can make more informed decisions about your overall financial position. Having more certainty around your ability to pay back a loan could result in lower interest rates and better financial products. 

CCR also allows borrowers with a strong repayment track record to gain better recognition from lenders based on their good behaviour. 

So… is CCR officially in effect? 

Technically, CCR has been in place since 2014, but only recently became mandatory for Australia’s Big Four banks, who were required to share at least 50% of their data within 90 days of 1 July 2018.  They now need to share 100% of their data within 90 days following 1 July 2019. This is part of a bigger push towards open banking in Australia, and Comprehensive Credit Reporting is just the first step. 

Here’s what the government had to say:

 

 

According to the Federal Government, “this measure will give lenders access to a deeper, richer set of data enabling them to better assess a borrower’s true credit position and their ability to pay a loan.”   

Is CCR a good thing for everyone?

Although CCR brings many benefits, it’s not sunshine and rainbows for everyone. There is a chance that with CCR in full effect it could have a negative impact on your current credit scores, especially if repayments have not been made on time. The best way to find out is to check your credit scores across the different Credit Reporting Bureaus. And with WisrCredit, you can get your Equifax and Experian score in the one place.  Go to WisrCredit here.

How Comprehensive Credit Reporting may affect your credit scores

With more visibility into your repayment history and credit obtained, it’s more important than ever to maintain good financial habits. With great power comes great responsibility, right?

Here are a few best practices to keep in mind:  

1. Pay your bills on time. 

Automate, automate, automate! 

2. Don’t apply for credit that you know you can’t get.

Check your credit score on a frequent basis so you understand your borrowing power and can start to see what is impacting your score – either positively or negatively.

3. Keep your debt under control. 

We have an app for that.

…and that’s CCR in a nutshell. Good on you for getting this far! Keep an eye out for mentions of open banking in the news since this is only the beginning. 

 

Disclaimer: This article contains general information only, and is not general advice or personal advice. Wisr Services 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.

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.

What the finance is a credit score?

Personal finance can feel about as straightforward as Beyoncé’s hair on a humid day. Less than 30% of Australians have actually checked their credit score from a credit reporting bureau so you’re not alone if you’re wondering what it is and why you should care. We’re here to help you become a little Wisr on credit scores in a way real people can understand. Let’s break it down…

So, what’s a credit score then?

First off, you may have three of them. We’ll cover why a bit later on. So really, the question should be “what are your credit scores?” Plural. Oh, and you might hear them referred to as “credit ratings” as well – same thing.

Right, now that we’ve covered that, your credit scores are numbers that represent your credit risk. They provide a way for credit reporting bureaus to try and quantify how likely, or unlikely, you might be to repay your bills. Don’t freak out – your credit score isn’t the only factor lenders consider, but it is usually one of the main considerations to find out where you stand in your financial behaviours. It’s also easy to increase your score once you know what it is and how to improve it. Nice.

How are credit scores calculated?

The short answer is that every credit reporting bureau has a different way of calculating their score.

The longer answer is that the credit reporting bureaus will look at your credit history and make a determination based on their own algorithms. Unfortunately, the algorithms they use are unavailable to the public for fear of trying to “game the system,” but following good financial practices will help make sure you’re going to land in the higher range of scores. You may also hear the term “credit report” floating around. Credit reports are different to credit scores and are made up of information like: demographics, types of companies you’ve taken out credit with, the amount of credit you’ve borrowed, how many credit applications and/or enquiries you’ve completed and any overdue payments you may have had. Basically, it’s a report of your financial life known as your credit history.

Let’s review:

Credit score (credit rating) = a number calculated from all available information on your credit history.

Credit report = comprehensive collection of your personal and financial details used to determine your credit score.

You can see a general explanation how each credit reporting bureau determines their score on their websites or you can read our Anatomy of a Credit Score article.

What does a credit score mean for you?

Effectively, the higher the score, the better your creditworthiness.

Your credi-wha?
Your creditworthiness is the same as saying how dependable you are to repay your debts. When you’re seen to be more creditworthy, you’re likely to benefit from lower interest rates and being more easily accepted when applying for any more credit. It becomes pretty important when you go to borrow money for a home, wedding, car or any other large purchase.

Why you should check your score

Aside from just knowing where you stand and how easily you might be able to access credit, you’ll also want to be sure no one is swooping in on your identity or making mistakes on your credit report. It shouldn’t happen often, but it does happen.

If your scores aren’t within range of each other, it might indicate you have a mistake on your report or there’s been identity theft. That’s why using a service where you can compare multiple scores is so helpful. If something doesn’t seem right, you should get in touch with the relevant credit reporting bureau to find out what might be going on.

Some ways you could boost your credit score

We have a whole blog post on this subject, but since you’re here, these are a few things you can do to boost your score:

  • Paying your credit card off in full each month or at least making sure you meet your minimum monthly payment
  • Looking into debt consolidation (we can help with that!)
  • Limiting the number of times you hit your credit report with enquiries
  • Paying your rent, utilities and other bills on time
  • Remembering not all lenders are treated the same (e.g. Payday enquiries may be viewed negatively)

Have a look at our 7 Ways to Improve Your Credit Score post for more detailed information.

The bottom line

Many life moments may depend on your credit score, so best to check it out now.

 

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.

How To Improve Your Financial Health

Knowing where to start and how to improve your financial health can be challenging but following these steps can set you on your way to financial wellness.

Your credit score is a mirror of your financial position. Getting money smart may not only help your credit score but also set-up good money habits that can last a lifetime.

Like most habits, the secret is to keep it simple and do it often. Below are some Wisr tips that can go a long way to helping kick-start your financial wellness.

1. Spend less than you earn

It sounds pretty simple, but it can be easy to spend more than you earn. Create a budget that lays out what your in-comings and outgoings are. It will allow you to see exactly where your cash is going each month. Don’t worry if you’re not a whiz with a spreadsheet though – there’s plenty of apps available to download that will guide you through the whole process.

2. Reduce high interest debt

According to a Wisr survey, one in four Australians are financially stressed. The biggest contributor being high interest credit card debt. A wise first step is to look at all the debt you are paying and prioritise paying off the highest interest first. If you can’t pay off outstanding balances across multiple cards and loans every month, a debt consolidation loan is one option to get back control.

If you do have a credit card, make sure its suitable for your needs and provides you good value. For example, it may not be worth the extra rewards points if you’re paying interest rates at 20%.

3. Build up your nest egg

While retirement can seem like more than a lifetime away (particularly at 8:30am on a Monday) it’s still something you need to prepare for. Australians are living longer and healthier lives, which means you may need more money put aside for when the time finally arrives.

You could be making non-concessional contributions to superannuation or putting a little bit of your salary in the bank each pay day to improve your financial position. This not only gives you the chance to reach your lifestyle goals later in life, but also build good financial habits today.

4. Know what you’re worth

Financial wellness is about making sure you get a smarter, fairer deal. Understanding your credit score is the first step in achieving this.

It means youʼll be well informed about your creditworthiness before you apply for a loan or credit card. And more importantly, now that you understand your credit score can change over time, you’re able to perform that financial health check more regularly.

So make sure you get Wisr and get your credit scores today – it’s free and the most comprehensive tool of its kind in Australia.

 

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.

Refinancing Debt: A Case Study

Struggling with repaying debt is not a nice position to be in but there are solutions out there.

According to the Australian Bureau of Statistics, the average Australian has more than $17,500 in personal debt – including outstanding credit card balances, car financing, personal and student loans.

As many of these debts could be accumulating a high amount of interest, it’s no surprise that many people look to debt consolidation tools to help them regain a financial foothold.

One of the most common forms of debt consolidation used by consumers is to switch to low or no interest credit cards (known as balance transfers). In the case-study below, we’ve highlighted how this could cause more problems than it solves.

Getting Out Of Debt Case Study

James¹ was just one Aussie struggling with a $20,000 debt across a couple of different credit cards. He was managing to repay over $500 most months, but was still having to make purchases on the cards. Some months he could only pay the minimum amount, and both cards were reaching their maximum limits.

He had considered a balance transfer to a low interest rate credit card but with the period to repay the loan being under 18 months before the interest rate reverted to a higher rate, he knew that it would be difficult to repay the debt in that time.

Instead, James settled on a personal loan with a non-bank lender. As his credit history was good, he was able to access a loan at the rate of 11.95%* (comparison rate of 12.84% pa) – significantly less than his current credit cards.

He borrowed $20,000 and was able to pay out his credit cards in full.  James now makes just one payment a month of $458, which he sets up as a direct debit, instead of multiple payments to different providers at different interest rates.

Over the five year term of the debt consolidation loan the total interest paid would be $6,861, compared to $11,472 if he had kept his $20,000 credit card debt and paid $529 a month towards both cards over the same period. That’s a saving of $4,661.

So, with a fixed-term loan James’ debt was covered every month, at a lower interest rate, and simplified through a repayment schedule. He says he’s going to put the savings towards a house deposit, or maybe a holiday.

Points to remember when refinancing debt:

1. Make sure that you are financially better off after all fees and interest rates when compared to your current credit card or loan.

2. Look for any potential ‘hidden’ fees. For example some personal loans may penalise you for early repayment, whilst some cards might issue a penalty payment if a minimum monthly payment is missed.

3. Shop around as different providers may offer better lending rates, especially if the borrower has an excellent or good credit score. But avoid making successive applications as this can negatively impact your credit report. Most non-bank lenders will offer a range of interest rates depending on the borrower’s credit history and meeting certain lending criteria.

4. Pay attention to potential changes in the lending industry for better deals. For example, the upcoming Comprehensive Credit Reporting reforms could mean a change to your credit score – which in turn could see you get a better interest rate for a loan.

5. Know where you stand on creditworthiness by checking your credit score. WisrCredit is the only site in Australia where you can get your credit scores from the major credit reporting bureaus in one place. It’s free, won’t impact your credit score and gives you the most comprehensive view of the financial you. Compare your scores with WisrCredit here.

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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.

* Comparison rate(s) based on $30,000 unsecured loan, fixed over 5 years, with monthly repayments. WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

Seven Wisr Ways To Improve Your Credit Score

There’s always room for improvement when it comes to keeping your credit health in check.

Yep, even a great credit score can be improved! We’ve come up with seven helpful tips to help you stay on track and improve your credit score.

1. Keep your credit applications on the down low

When it comes to shopping around for a personal loan, getting the best rate is an important factor for many borrowers. When you make a credit enquiry for a loan or a credit card it is recorded on your credit report, even if you don’t follow through with the application.

Submitting several loan applications to multiple lenders with the hope that one will be approved could be detrimental to your credit score.

To help reduce your risk, you should consider the “six-month rule”, meaning that you try to limit yourself to just one or two credit enquiries every six months. It is also worth using online calculators and services which won’t impact your credit score before submitting a formal credit application.

2. Pay your bills on time

Even the most organised people sometimes forget to pay their bills on time. Late payments for bills over 14 days for credit cards, personal loans, auto finance and mortgages going back two years can have a negative impact and lower your credit score.

It is important to always pay your bills on time and if there ever is a problem, make sure it is paid as soon as possible and keep the company informed about your circumstances to avoid having a default listed on your credit file.

3. Avoid defaults (overdue debt) at all cost

If you are overdue on a payment that is more than $150 and you have been given notice of the intent to default, this is serious and could result in a formal default being recorded on your credit file for the next five years. This record could also stay on your file, even if you subsequently pay off the amounts overdue.

If you’re struggling to pay your bills or meet your regular repayments due to unexpected circumstances, it’s best to contact the Biller or credit providers and see if you can apply for a hardship variation and negotiate a repayment plan.

4. Review your credit report regularly and correct errors

You are entitled to obtain one free copy of your credit report per year from each of the major credit reporting bureaus (Equifax, Experian and Illion). Even if you believe you do not have any negative information on your file, it is still wise to check it, as there could be errors.

If any information on your credit report is incorrect it is important to fix it straight away otherwise future credit applications will be affected.

Check out the WiserCredit Bootcamp on how to take control of your personal credit file.

5. Keep an active credit account

No, we’re not recommending you go on a huge shopping spree. But it’s actually a good thing to have a proven credit track record that shows you can meet repayments of any credit outstanding, including mobile phone plans, an internet account, utility accounts even a personal loan or credit card.

As long as you are managing your debt well and meeting all your commitments, this demonstrates to lenders that you may be a worthy credit borrower and may even help increase your credit score over time as long as you consistently manage your finances well.

6. Consolidate your debt

When you try juggling too many repayments for multiple debts, this could lead to missing payments or worse not having the sufficient funds needed to cover the payments that fall due. Reducing your debt may be helpful to your credit rating in the long run.

If your credit file is free from any negative listings and defaults, then your bargaining power may lead to a lower cost way of managing your debts. Consolidating several loans or credit cards incurring high interest rates into one lower interest rate loan may be a wise thing to do.

7. Know what counts on your credit file

It’s more than just credit cards and loans that affect your credit file. Taking out a new phone plan or connecting to a new utility company could impact your credit report, as these companies may make enquiries about your creditworthiness.

It’s also important to know that not all enquiries are treated the same way. For example, a short-term loan (also known as pay-day loans) or car finance may be seen as riskier to a lender than a home loan application or new electricity connection.

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.