She's On The Money - Keeping your Credit Score in Check

Episode Date: July 6, 2021

There is a whole lot of confusion involved when it comes to credit scores in Australia - do they matter? Can they impact your ability to receive a home loan? Do you need a credit card to help you build a credit score? Today we shed a little light on this rather befuddling topic and we promise by the end you’ll feel completely confident when it comes to credit.Keen to check your score? Have a look at Experian, Illion or Equifax!Feeling overwhelmed and want to talk to a financial counsellor? Call the National Debt Helpline on 1800 007 007 or visit their website.The advice shared on She’s on The Money is general in nature and does not consider your individual circumstances. She’s on The Money exists purely for educational purposes and should not be relied upon to make an investment or financial decision. Victoria Devine is an Authorised Representative of Australia Pacific Funds Management Proprietary Limited ABN 34 132 463 257 - AFSL 339151.See omnystudio.com/listener for privacy information.

She's on the money. She's on the money. Hello and welcome to She's on the Money, the podcast for millennials who want financial freedom. now there's one topic that comes up time and time again that people don't really seem to have an answer on and that is credit scores we have an answer on it though we do we've got lots of answers but what are they how do we figure out what ours is and do they actually impact our ability to make those big purchases like a home yes podcast over done done and dusted have a have a good a good

life. Have a good Wednesday. Yeah, just kidding. My name is Georgia King and joining me to get to the bottom of things today is, of course, financial advisor, Victoria Devine. V, what is a credit score? Let's start at the start. Let's start at the very beginning. It makes sense. Yep. All right. So G, a credit score or a credit rating, these two things are actually interchangeable. So they're the same thing, but some people don't know that. So let's clarify that at the start. So essentially, lenders are going to use that to figure out if you're going to be eligible for a home loan a car loan or a personal loan and it is a history of all the money you've borrowed and all the money that you've had owed in your life so your credit score is based on information that is in your credit

report and that's basically if you've ever applied for a credit card before or any type of loan or had any type of finance agreement historically so that'll be on there and the important thing about that credit report as well it's not just if you got the credit or not so say you g decided all right i want a personal loan want to go on a holiday and you went to a whole heap of banks and applied for a personal loan with them all of those inquiries are going to be on your credit report including the one that you got and i think it's a misconception that some people like oh it doesn't matter like i never actually got the loan like your inquiry for credit is going to be on that report and that can negatively impact your credit score. Because that makes you look a bit kind of

flaky. Yeah it makes you look flaky but it also is a bit of a concern because they'll go well gee why why'd you go to the Bank of Melbourne and apply for a personal loan and then not get it? Did they not approve you? What's going on? What do they know that we don't know? And then they look into that further. So for me it's just really important to understand what your credit report is to begin with and we'll get to it and there are a whole heap of ways to find out what your credit score is, but back to explaining exactly what it is. So your credit score is a number and it sits between zero and a thousand or 1200, depending on the credit reporting agency that you're going to be using. And the higher the score, the less risk a lender sees in lending

you money and you're likely to get a better deal. So we want high credit scores. We want it to be as close to a thousand or as close to 1200 as physically possible. And the score is on a five point scale. So you're either going to be excellent, very good, good average or below average. And we don't want to be sitting on the lower end of that scale. Excellent and very good. I would say in the same realm. So we don't want to slip any further down than that though. Okay. So how do we find out if we are excellent, very good? So there are lots of places to find out your credit score and you guys have probably stumbled across a number of them and it's actually super easy to understand your credit score. You can find out what your credit score is from any online credit provider

and there's a thread in our Facebook group with lots of different websites. You're able to search credit score and it'll just pop up what we recommend and it should be free and pretty fast. The important thing to note here though is we want to do a soft check not a hard check. So there's a difference between the two of these and I don't want to get too technical but a hard credit check is essentially the type of check you do when you're applying for finance. So a bank will go in and fully review everything and it will go on your credit score. Whereas a soft check is you just going, hey, can you give me the number in a quick update on what's going on? And you can get that from a number of places. So there's a place called Experion, there is Equifax. If you Google

free credit score check, the first couple are going to help you in saying that. We'll link some in the show notes and our friends at Wise Up, this is not sponsored, they're just good eggs, um they actually have a free credit check tool on their website that i quite like does the same thing it's just a little bit more aesthetically pleasing which i'm obviously into drinking all for that okay so credit score does that do you need a credit card no no no no no no like shut it down shut it down shut it down put it in the bin put it on fire like 2020 which was a dumpster fire oh I miss that yeah I miss I miss those vibes gee they bring them back but no you do not need a credit card to create a credit score you might have heard this before though because in America

you do okay so in America they're all about building your credit history and your credit history helps create your credit score which the more credit you've had and the better you are at paying it back it's kind of like you know improving it and going to university and getting good grades and you come out with a really good outcome so that they go, oh, well, she's a HD because look, she's done all of this work and she gets it. In Australia, it is different. The credit score that you have by default usually starts really well. And things like you paying your phone bill on time and not going into debt and paying your electricity and your water bills on time are going to contribute to you having a good credit score. In saying that, a credit card doesn't

necessarily impact you negatively but it can very easily because if you miss a payment or accrue any interest like you're not going to be seen as someone who is really good at money management because you're borrowing it from someone else yeah right so if you've got a credit card yeah okay that might be great you might have it for points and a whole heap of other reasons but if you're going to get a home loan that's going to come up on your credit report and they're going to say hey gee I saw that you have a credit card and you go yeah no problems and they'll go do you owe anything on it? And you go, no, no, no, I'm really good at my credit card. And they go, okay, cool. We don't, we don't care about that. How much is the limit? And you'll go, oh, it's a $10,000 limit.

And then they'll go, oh, okay, no problems, Jay. We'll just knock down your ability to lend by $10,000. And you'll go, what? But I have nothing owing. And they go, yeah, yeah. It's actually not about what you owe. It's about what you've got access to. And so that's why a lot of brokers will give you the recommendation to get rid of credit cards if you are going for a loan if you don't need them or knock down their limits significantly so I even did this recently when I was purchasing my home I took a credit card that I had that I think had like a six thousand dollar limit and I had it because of business and the reason I had it I don't actually use it just was one of those things that I had for work and it was really helpful in the moment in fact

I've now shut it down, but I stripped it back completely to be a $500 limit. And I was like, you know what? I want to keep it just in case, but like just slip it back. I had some direct debits on there that I just didn't want to have to change. So instead of having that $6,000 limit, I called up and said, Hey, what's the lowest I can go on these credit card, like with the limit. And they said, Oh, 500. And I said, can I knock it back to that girl on the phone? Super confused. She's like, why? And I was like, I don't want to cancel the card, but I also don't need it impacting my ability to lend money from a bank. She was like, oh, okay, no problems. Like she didn't seem to know what I was talking about, which to be honest is a bit concerning, but that

is something that people run into trouble with when they say, oh, I want to go and get a home loan. They don't realize that just having a credit card actually impacts how much you can borrow. Interesting. Which is wild to me. So when you go in, I don't know, do you apply for a credit card? i've never had one so will they tell you that straight up that no absolutely potentially why would they do that yeah you're right it's not in their best interest true ah damn credit card companies but you know what i was actually very confused about and this is probably not a good thing to share but you know what we're open we're a family here yeah i was shocked at how easy it was to get that credit card okay so i went and got it or what like just over 12 months ago for work

stuff I needed one because like whatever supplier I was buying from would only accept credit card because they were overseas and all of this other stuff and I talk often about how it's really important to not rely on credit cards and you know there is actually no excuse and in my book I talk about all of the myths that you don't need one for and to be honest it was just me taking the easy option out I wasn't trying to go okay cool well I need one but I've told everybody else you don't I'm sure there was a workaround I'm sure I could have like asked them for bank deposits or whatever it just in that moment because I was buying from an overseas supplier it felt a lot safer to have a credit card in between because I didn't really know them anyway you're welcome for

the notebooks that are coming to the she's on the money website but applying for it I was like oh this will take ages like this might not be worth it went on the website filled in all of my details approved immediately and they said your card's going to be sent out in x amount of days and what the devil yeah like obviously I have an income and I you know I'm good with money so didn't have a bad credit score or whatever maybe that contributed to it but just like the hurdle to get a credit card was terrifyingly low and I remember being like surely that's not it like because they just got me to upload a copy of my driver's license which is obviously really easy it's 2021 so you just like snap it on your phone and I was like what that's it no one called me

no one spoke to me and then three days later in my mailbox interaction three days later in my mailbox I had a credit card that I could have slipped into a lot of debt with I'm not saying I did obviously I don't even have that credit card anymore but I was like what do what the devil aren't there pretty tight regulations around credit cards these days that after pay and stuff don't have to yes yes so so we'll get into that I think in an entirely different episode because there's a whole range of stuff going on at the moment that I am personally not very comfortable with, but I kind of did it as like a little test because, you know, I always talk about credit cards and how easy they are to get. And I was kind of like, as much as I could have done something

else, I was like, okay, you know what, I'll just do this and see what happens. And like, obviously I know money better than the average bear, I would say. And yeah, I was still shocked that after the Royal Commission and after, you know, the responsible lending laws have come in that it was so easy and I mean I'm personally what people would call a clean skin like I don't have any bad debt you know I don't have any bad credit history I've had a personal loan historically which you guys know about but you know I was an easy target but like imagine if I was going through a rough time and really needed that I could have easily gone from being what a lender refers to as a clean skin which is somebody that's really easy to lend to because they've got no bad

credit history to somebody who has six thousand dollars worth of credit card debt essentially overnight. Anyway, that's my rant. No, I love it. We're talking about credit scores, not Victoria's credit card tests. Okay. Well, back to credit scores then. Thank you. And the home loan chat that we were kind of having before. So if you have a bad credit score, does that mean that you're less likely to be able to be approved for a home loan? Yes. And the reason is because the credit score is essentially like saying, hey, is Georgia a good person to lend money to? And they'll go, oh let's check her credit score and see what her history is like and they'll go oh she didn't pay back the water company she she skips her phone bill consistently oh we don't feel that comfortable

giving her a home loan because we just don't feel like she you know is a responsible person and is actually going to pay that back so for them it's actually just them doing their due diligence and going is Georgia a good person to lend to and then your credit score is essentially saying oh she's a bit riskier than this other person that's, again, what the lenders call a clean skin and a good person to lend to. They'll go, yeah, just say no to Georgia and give it to somebody else. And that's why for a lot of people who have a bad credit history, it's very hard to secure a home loan. They might have more than 20% in savings in their accounts. They might have no personal debt, but their history says that they're not a good person to lend to. So they've got to

work really hard to one get over that and create good credit history and the way you know we'll get into that I'm sure you're going to ask me how do we get a better credit score soon but there are a number of strategies and ways that you can build your credit score back up but it can be really disheartening and the reason it can be really disheartening is because too many people don't think about their credit scores early enough like it's not something that you consider until you're actually talking to the broker right no why would you look into it totally and I think people dismiss them. And I've seen this in our group quite a bit because they're like, oh, it's an American thing. It doesn't matter. They look at your savings, your income and all of that jack,

but not necessarily your credit score. So what I'm hearing is that it actually is a bigger deal. Look, it's a big deal because it's reflective of whether you're a good person to lend to or not. And furthering on on that conversation, a lot of people, this is going to sound really dramatic, and I don't mean it to sound dramatic, but we're talking about money on a money podcast. I know people who have been so excited they've been saving for their first home and then they go to borrow money and they go to the bank and then they find out that somebody else has fraudulently used their identity and on their credit history are things that aren't actually related to them and that is why we need to be on top of our credit score and understand exactly

what that is like gee do you know if there's anything amiss on your credit history right now I would have no idea. Exactly. So that is why we need to just go and check. Even if we're not planning on purchasing at any point in the future, it's also a really good indicator of any loans that have been taken out in your name. Unfortunately, we had a money diarist recently who was telling us about how her partner had left her with a whole heap of debt.

And that came up on her credit score because they had taken out a whole heap of loans in her name. and while she kind of knew what it was she didn't know the volume of it until she saw oh what do you what do you mean there's a loan with x bank like i didn't know about that one either and then had to contact them and say hey like my name's victoria um i'm a client of yours but i don't know and essentially it was in her name it looked like there had been forged signatures and it's an absolute circus but it's not just people stealing your identity who are overseas doing this it's actually quite common in financially abusive relationships for a partner to apply for credit in your name and it's just a good idea to just do a little bit of a checkup

it's like financial hygiene I'm not saying check every 10 minutes or every month but like every couple of years I would have a look like I would recommend maybe once a year like don't do it too often because it's not necessary and you know we don't want to go overboard but like just be in check you know maybe new financial year new you checking on your finances love it so if you have been the subject of that kind of fraud or you've had an abusive partner who has taken advantage of your credit score and it's plummeted can you resolve that and fix that yeah okay good look there's two ways about it like at the end of the day if let's use an example someone took out a ten thousand dollar personal loan in your name g and all of the documentation says it was you

the first thing I would do is call the bank and have a chat to whatever lender that was whoever it was and just be honest hey I don't know about this I don't know what it is or what's going on and they're going to step you through their process I'm not saying they're going to wipe the debt and it'll all be well and good like unfortunately that's not the case for 99% of people but most banks are really understanding because it's actually a lapse of judgment on their behalf as well yeah right because that loan has gone out and you're saying that you didn't do that that's fraudulent activity like that is a jailable offense like that is fraud and so they're going to take that accusation pretty seriously and work out with you how that works and what's going

on and if you have something on your credit score that you're very worried about and you're not sure what to do our friends at the national debt helpline are geniuses at this they know exactly what to do who to talk to where to go for every single different situation so if that is you call them talk to them they are going to help you in a way that goes beyond anything a podcast can teach you 100 so go chat to them um and remember that they're nice humans and i feel like we talk about them a lot we do we do it's not sponsored again they're just good eggs doing good things great eggs so we will link that website in the show notes and the number just to jot it in here now is 1-800-007-007 i always remember that off the top of my head because it's like 1-800

bond bond exactly yeah like they're gonna save you ah bond all righty so back to the home loan thing v on the flip side of that if you don't have a strong credit score because maybe you've never had a credit card or you haven't taken many loans like you don't have a very big history of being seen to be responsible with money because you just haven't really touched loans or anything like that does will that hinder my ability to buy property no so yes and no but it's 2021 who doesn't have a phone who doesn't have a mobile bill I can't think of anyone yeah exactly so I think that it is pretty uncommon for people to have an entirely clear credit history unless your parents still pay for your phone in which case

it's a good idea to start just getting a few things in your name I'm not saying go into credit we're not talking about personal loans but having things like the electricity bill in your name as much as it is a responsibility, especially if you're in a share house, like nobody wants the electricity bill in their name, right? They all want the other people to have that in their name and I'll pay you, but it's your responsibility, right? That can actually pay off over the long term. But flip side of that, if you're going to take the responsibility of having the electricity bill in your name for your share house and people aren't paying you, that could negatively impact your credit score. And that is not fair on you if you're late on payments because your housemates

didn't pay and therefore you've waited to pay does that make sense yep so we need to be on top of these things and actually understand what it means long term for us but at the same time if you're like cool like I'm moving in with G King I'm gonna have the electricity bill in my name it's not a bad thing in fact it's gonna help me build my credit score a little bit um so basically what you're saying here is I don't need a credit card no because you do hear that as well you hear people saying you need a credit card to get a house because you know okay cool no let's shut that if you take anything from this it is that you do not need a credit card to get a home loan in fact it hinders you more than it helps you do the right thing pay your bills on time pay your

phone bill don't go into debt and your credit score is going to look delightful a strong message to head to the break with i think after the break we will be hearing our community's most pressing credit score questions as well so please guys do not go anywhere nowhere come back after this all righty guys please remember as well that conversations like the one we're having about credit scores they happen every day on our uh brooming facebook page i think there's 181,000 of us over there now we have so many friends are we allowed to just consider them friends they are friends yeah no and i know they are friends but like so many people will be like victoria well they're people in a facebook group you had but it's mine but you recently turned 30

i know you had to postpone your party yeah it was very disappointing maybe you could extend the invite to the 181 000 people in the facebook group if they are your true friends you know what i'm saying yeah but if if you guys are my true friends you'll understand that that's not in my budget and you'll respect that can you imagine maybe we can have a webinar or something How many people go to music festivals? I don't know. I literally am not a music festival person. I would have no idea.

Can't tell by the pearls. Yeah, okay. So the moral of that story was join us on Facebook, Instagram, TikTok. Because G has just confirmed that Victoria will not be having a birthday festival. Shut it down. Okay, back to things. Vicky D. Joanna from the group said that she's heard it's a good idea to check your credit score once a year. You did mention this earlier, so you would agree? Well, I mean, what did I say earlier?

Yeah, so scrap that question. You answered it earlier. No, no, no, it's all good. Why is that a good time? Checking once a year is a really good plan. We don't want to look at it all the time because it's not overly helpful for our mental health, but it's also not overly helpful because it's not going to change day to day. But once a year or so is a pretty good idea to make sure that you are on track and nothing is awry okay cool cool jinking cool next she's lost the plot now there was also a bit of chat in the group about how checking your credit report could potentially worsen your credit score you mentioned this before when you were talking about hard inquiries and soft inquiries welcome back to another episode of mythbusters no it's a myth so checking your

credit report doesn't worsen your credit score as I said before there are some good ways to check it and some bad ways to check it and as we mentioned with there's the soft check and then the hard check we don't want to be doing the hard checks but if you go to our friends at wiser again not sponsored just good and it's one of those things where we're working with all these people that I genuinely want to promote and like because they're trustworthy and safe and so I'll continue to do that. But if you head to the Wiser website, their credit score checker is a free credit checker and it's a soft credit checker. So you're going to be okay, but don't feel like checking it is going to make you look suspicious. If anything, it makes you look like you're on top of your finances and

not burying your head in the sand. Okay. Good to know. Good to know. And now to a question that I think a lot of people in our group have been waiting for. Yeah. Okay. So the nail color I use it was bubble bath by OPI. Is that it? Show me. Are you wearing it now? I can't see anything. Is that not just your natural nail? No. Of course not. Okay. Carry on. What was the real question? So the real question. I was trying to be funny. It was funny. It wasn't funny. No, no. You're all right, doll. I'm a comedian. Watch out, Tony Lodge. So Ryland from our group, she did raise this question as well. How do we go about improving our credit score if it is a little down in the dumps. If your credit score's not looking that sexy, there are a number of things

that you can do. First is stop panicking, stop stressing. It can be recovered and it can go back to good. It does take a bit of work though. So first is understanding why your credit score is not good and getting rid of the reason it is not good. So if it's personal debt that's not being paid off, let's have a look at that. It can be really confronting to do these things. But if you've got a personal loan that you can't seem to get on top of, the first thing you need to do is call that company and have a chat about renegotiating that loan or have a chat with our friends at the National Debt Helpline about how you can get on top of that because there's no point doing other things to increase your credit score if you've still got this you know big elephant in

the cupboard is that a good analogy I don't know I think it's like elephant in the room but it would be absurd if you had a big elephant in the cupboard it's like a skeleton in the closet yeah that's what i meant a skeleton in the closet but i merged those elephant in the cupboard i like it yeah but if you've got an elephant in the cupboard like that's suspicious right well you can but it's not gonna be easy it's not can you how big's your cupboard nah g king's reach guys but if there isn't anything like that you can do a few things so pay your bills on time or your loans on time and consider something if you're not that good at remembering that's okay use something like BPAY for bill payment or set up direct debits so that you avoid any type of late fees. And if you

can't pay your bills or loans on time, as I said before, talk to your credit provider, talk to National Debt Helpline, talk to someone about it. Don't just bury your head in the sand and not do anything about it. The second is keep on top of it. So check your credit score often. Again, annually is a great place to start. It is the start of July at the moment, guys, if you're listening to this podcast on the day that it came out but start of July why not new financial year we do a check why doesn't that become the norm okay new financial year has started what are the things I need to do I'm going to check in with my budget I'm going to check in with my credit score I'm going to check in with any loans I have to make sure I'm on top of it I'm going to check

in with any insurances to make sure I'm getting the best possible deal like now could be the best time to set yourself up for the next 12 financial months which I think is really fun maybe I get excited about that you get extra excited but it's i do it's very fun the next is avoid applying for multiple loans in a short period of time like i said before if you've got a loan that you want to get don't go to lots of providers and apply for loans with all of them and then hope that you get one like that's like going fishing and hoping you get something back but you've lost all of the rods like that's a really bad analogy i hate it when i go fishing and then i lose all the rods it's the worst i don't even go fishing guys yeah i think that is quite obvious

oh no but essentially avoid applying for multiple loans in a short period of time because that is an indicator of financial stress and reliance on credit and then last but not least remember to let your lenders know if you move home or get a new email address and keep all of your information and contact details up to date that's really important because if something happens like you have an overdue debt or you know they weren't able to debit your account for some reason you're the first to hear about it and you actually can amend it before it impacts your credit score that's all for me and my very weird ted talk loved it loved it all okay so how long does it take roughly to improve a credit score we think it is it's different for everybody like

Sometimes there are a few things that you can do and I do know that if something is on your credit score and it shouldn't be on there at all there is a way to get rid of it. You need to talk again to the National Debt Helpline or to your credit provider or the person who did it so that they can completely erase that history for you and that could significantly increase it but again it could take a couple of months to just get back on track. For other people it might take a couple of years just depending on the severity of their credit score. Okay so check in now basically if you are just be on top of it my friends like we don't need to do anything other than check and just make sure our housekeeping is done properly and I can imagine it would be tempting not to look

if you might be a bit scared but just face it get it done rip that band-aid off again create a plan from there not knowing is not helpful like not knowing doesn't give you any power knowing it's not great like you don't have to share it with anyone you could check and then tell everybody else you didn't check but just be aware of what it is because that is going to help you in the future like if future you really wants to buy a house go and check your credit score to make sure that when they do go to do that there's no nasty surprises okay perfect i think that is a great place to leave it for today v i'd like to agree j king you'd like to agree just i guess the the final little message is again if you are feeling overwhelmed do head to the national debt helpline

linked in our show notes but v let's leave it there all right but just before we head off we'd like to acknowledge and pay respect to australia's aboriginal and torres strait islander peoples they're the traditional custodians of the lands the waterways and the skies all across australia we thank you for sharing and for caring for the land on which we are able to learn we pay our respects to elders past and present and we share our friendship and our kindness and the advice shared on she's on the money is general in nature and does not consider your individual circumstances she's on the money exists purely for educational purposes and should not be relied upon to make an investment or a financial decision and we promise victoria divine is an

Authorised Representative of Australia Pacific Funds Management, Proprietary Limited, ABN 34132463257, AFSL 339151. And remember, guys, if you do have any big elephants in your cupboard, release them. That's not a safe place. That's not a safe place to keep elephants. Let them be free. Have a good week, guys.

See you, guys. That's not a safe place to keep your elephants. Thank you for watching!