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Credit Scores

Why Do You Need A Good Credit Score?

Credit Ratings And Defaults Australia

People often talk about having a good credit score and avoiding defaults or black marks next to your name.
But why is this important? Is it really the end of the world if you have a bad credit score?
Obviously people don’t go out of their way to get a bad credit score,
but it happens to thousands of Australians every year who fall into debt.
We look at some of the misconceptions around credit scores and defaults.

Credit Rating Sydney, What Are Defaults Melbourne, No Black Marks Perth

What Is A Default?

How do defaults affect my credit score?

A default in finance is a failure to meet the legal obligations of a loan. For example, if you purchase something on your credit card such as a TV but are then unable to pay back the TV on your credit card, there is a chance you will receive a default or black mark against your name. This effects your ability to borrow in the future. A default hurts your credit score, as it lets other lenders know that you have been unable to pay back a loan in the past. While you may have you reasons for being unable to pay back the debt, it is often hard to negotiate your debt and get a fair deal. Debt negotiation companies such as My Credit Card Debt are usually able to avoid defaults if you talk to them early enough. So it’s important that if you decide to use these types of services to protect your credit rating, that you talk to them as soon as possible.

Credit Scores And Loans

A good credit rating can help you secure a better deal

Credit card companies want you to misuse them. They earn billions every year through interest, fees and late payments. That why if you are going to use a credit card, you should understand how they work and what you need to go to get the most out of your card. Using credit card does have its benefits particularly if you are earning rewards points. The key here is not over stepping your spending and buying within your budget. You should be able to pay off your credit card at the end of every month to avoid the extra charges credit card companies apply. Many people fall into the trap of over spending beyond their mean. This is one way to fall into credit card debt, not being able to control your spending with a credit card.

So Do I Need A Good Credit Score?

If I don't plan on taking on a loan do I still need a good credit score?

The answer to this question varies from person to person. Most people will take out a loan in their life, whether it’s to mortgage a home, purchase a car, get a new insurance policy or get a credit card, ect. As this can happen at any time in your life it’s important to keep an eye on your credit score and make sure you avoid any defaults. Many people fall into debt early on in their lives, then are unable to borrow when they are older. Banks may understand this to a point, but will still use your credit score to assess your suitability for the loan.

What Are The Things A Credit Score Is Used For?

What are the things I can use my good credit score for?

Most things that require you to borrow large amounts of money will require a look at your credit score. Some of the most common things people need their credit score for include:

Credit Cards: Credit cards are heavily reliant on you credit score and using them properly can give you good credibility. A good score can offer a number of benefits here including a cheaper interest rate when applying for a new credit card.

Home Loans: Almost all home loan companies decide how much they can loan you based on your credit score and current wage. However, even if you have a high wage and have the ability to pay back the loan, your credit score will reflect more personally about how you go about repaying your debts, your spending habits and the way you manage your money. So not only would a good credit score give you a better interest rate, but you could also be able to increase the amount of the loan.

Business Loans: Similar to home loans, but also reliant on other factors. A good credit rating would help you get your business started as a trusted financier. A good credit score will mean you are able to borrow more to get your business started.

Renting A New House: Landlords now look at your credit score before renting out their properties to potential candidates. This usually has to be done with the renter’s consent and could mean that people with a bad credit rating could have to pay a larger deposit that people with a good credit rating.

So if you have plans for the future that you might need a loan for, it’s a good idea to keep a good credit score. In most instances people will need to use a service that requires a good credit score at some point in their life. Having a good credit rating will make your life easier in the long term.

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