Knowing how to maximise your credit score is the only way you’ll buy any property before 30…
So, if you’re looking to buy a house or an investment property, or simply get a loan in any shape or form (hint: don’t get a loan for a car, here’s why), you’re gonna want to read this post.
Dive in to learn all about what your credit score is, why it matters, and how to get that damn thing as high as possible!
Table of Contents
What is a credit score?
Simply put, your credit score is a rating that banks look at to decide whether or not they should loan you money.
That credit score comes from your individual credit report and is usually a number between 0 and 1,000 (or, in some cases 1,200).
From that score, you’ll be classified as either excellent, very good, good, average, or below average. The higher your score, the more likely you are to get approved for a loan.
Because your credit report is built up over your lifetime, if you have never applied for a loan, won’t yet have a credit report. Without a report, your credit score will be average simply because you haven’t shown any bank that you’re a good borrower.
How is your credit score calculated?
I’ll keep this short and sweet…
Your credit score is determined by these three things:
- The amount you’ve already borrowed over your lifetime
- The number of times you’ve applied to borrow money
- Whether or not you’ve paid back your loans on time
All of that info will be in your credit report, which you have the right to access FOR FREE! Usually, you’ll have to wait 10 days to receive the report (you can pay to speed this process up).
The MoneySmart website suggests contacting these reporting agencies for your report:
Why does your credit score matter?
Basically, if you’re thinking you might buy a house or an investment property (or even take out a business loan) in the next few years, a good credit score will allow you to negotiate better terms and give you a higher chance of approval.
Knowing your credit score is important because it helps you understand why you were rejected for a loan and will show you what banks see when you apply.
Look, an average credit score (what you start with) isn’t all that bad, but an excellent score is going to do you a world of good when the time comes to fork out that deposit (and it will come!).
If you’re financially savvy and understand what a smart purchase is over a dumb purchase, it might be wise to start building up your credit score sooner rather than later.
Read on to learn exactly how that can be done!
Disclaimer: This is not financial advice in ANY WAY. This does not take into account your financial needs, goals or objectives. You should speak to a registered financial advisor regarding your personal financial situation.
Maximising your credit score
Never Taken Out a Loan
If you’ve never taken out a loan from any financial institution, then your credit report won’t yet exist.
This is both good and bad. It means you’ll have an average credit rating, but it also means it’ll be easier to improve that rating.
You’ve got to be really careful with debt. If you aren’t disciplined, it will ruin your life…
The best way to maximise your credit score at a young age (18+) is to take out a super-low-fee credit card. (I’m not saying this is what you, personally, should do, this is just a general strategy.)
This will probably be the first time that many of you have applied for a loan from the bank and it’s a bit of a daunting process.
Basically, I just searched through the top banks (Commbank, NAB, ANZ, ING, etc) and found a credit card with a very low (actually $0) annual fee and a super-low required income. It was pretty much a “starter card”
I applied for that card, submitted my bank statements and got accepted. The card came in the mail and before anything else, I set the credit limit as low as possible and made some ground rules:
- No spending any cash that I don’t have right there available in my bank account
- No using it for small purchases (ie. Food, Drinks, Movies, etc.)
- Pay it off in full automatically at the end of EVERY month
I made sure the card had an interest free period (55 days). This way, as long as I paid it off within the month of purchase I wasn’t paying any interest, yet I was still technically using loaned money so my credit report was building and my score was improving.
It was basically like using a debit card, with a few extra steps.
Already Taken Out a Loan
If you’ve taken out a loan before (car loan, credit card, etc), this section is for you:
Before you can work on boosting that credit score, you first need to understand what your credit report looks like.
So, Step 1: download your credit report.
After you’ve figured out which areas you need to improve on, here are some steps that will help you improve them:
- Lower your credit limit on current cards
- Don’t apply for any other loans
- Try to pay all current debt on time and in full (credit cards, bills, rent, etc)
- Don’t miss payments for any household bills (not that many of you have them yet)
These are common strategies used to improve credit scores. As your score starts to improve, you’ll notice that future applications are much more likely to be accepted.
If the things above are too difficult to achieve, consider talking to a registered financial advisor, or a free financial counsellor.
Disclaimer: This is not financial advice in ANY WAY. This does not take into account your financial needs, goals or objectives. You should speak to a registered financial advisor regarding your personal financial situation.
Final Word
That’s basically all you need to know about a credit score and how to maximise it. I hope you now know why this rating is important regardless of your age, and how you can maximise it.
Remember, nothing on this website is financial advice. It is simply general information about credit scores and general strategies used to maximise those scores.
With a good credit score, the world is your oyster (if you use it wisely). You can start building a property portfolio, take out a business loan and turn that dream into a reality, buy your own house, the opportunities are endless!
For more on personal finance, check out these posts:
Signing off,
Uncle N.
The information on this page is for informational and educational purposes ONLY. It does not take into account your personal financial needs, objectives or situation. For specific financial advice, speak to a registered financial advisor.