Save money, get a better loan deal by using this key number

Loan interest can be less for people who keep track of and control their credit score. Here’s how to be seen as a better borrower.

A credit score plays a key role in lenders deciding whether you can borrow money, and many Australians don’t realise it can also deliver them lower interest rates and better loan deals.

Fewer than one-third of consumers know their credit score, and about half have never seen their file despite the fact that it costs nothing to obtain.

Almost one quarter (23 per cent) or borrowers have used their score to get a better deal on a loan, according to new research from finance platform SocietyOne, which was recently acquired by digital lender MONEYME.

“When applying for credit, the amount you can borrow and the rate applied to your loan often depends partially on your credit score,” says MONEYME chief operating officer Jonathan Chan.

“Engagement with your score and overall finances can help you to improve your finances overall, whether that be by getting a better deal on a loan, or creating good financial habits,” he says.

BETTER SYSTEM

Credit scores have become more accurate and detailed in recent years with the introduction of Australia’s comprehensive credit reporting system, which measures both positive and negative credit events rather than the historical negative-only approach.

Kurt Phipps checked his credit score before hunting for housing. Photo: Stephen Reinhardt

Several personal lenders offer tiered interest rates based on people’s credit scores, and rate differences can be 5 per cent or more.

The Australian Securities and Investments Commission’s Moneysmart.gov.au service says people can access their credit score, also known as a credit rating or credit report, at no charge.

Moneysmart says it usually takes a day or two via an online request, or you may have to wait up to 10 days if you want it mailed.

“You have a right to get a copy of your credit report for free every three months,” it says.

“It’ worth getting a copy at least once a year.”

People can access their score through credit reporting agencies Experian, illion and Equifax, it says. Scores are between zero and 1000 or 1200, depending on the agency.

Experian general manager of credit services Tristan Taylor says more than 95 per cent of Australians’ loan accounts are reported within the comprehensive credit reporting system, allowing lenders to get a “complete picture of an applicant’s financial history and behaviours”.

BOOST YOUR SCORE

“While improving your credit score takes time and careful management, there are ways people can proactively manage the health of it,” Taylor says.

“Keeping on top of your repayments and choosing the right financial products for your situation are important factors in maintaining a strong credit score.

“Tips on how to improve credit scores can be found at CreditSmart, an industry initiative developed by credit experts to help Australians understand how credit reporting works and how to look after credit health.”

MONEYME’s Chan says people can improve their score by:

• Keeping up with credit card and mortgage repayments.

• Minimising credit limit and the number of credit applications you make.

• Avoiding negative events such as defaults and bankruptcies.

MONEYME’s Jonathan Chan says credit scores can impact interest rates.

Kurt Phipps, 30, is looking to buy real estate so he checked his credit score in advance.

“I wanted to better understand my financial situation including if there was anything I could do to improve my borrowing power,” he says.

His credit report also provided insights about how he could improve his score.

“This knowledge has allowed me to gamify improving my finances, incentivising me to see how high I can lift my score,” Phipps says.

FACTORS THAT INFLUENCE CREDIT SCORES

• The type of lender you have applied to.

• How well you’ve kept up with your repayments.

• The credit limit of each of your credit products.

• The type of product you have applied for.

• The number of credit applications you make.

• Negative events, such as defaults, judgments or bankruptcies.

Source: SocietyOne

Originally published as Save money, get a better loan deal by using this key number