Confronting your own credit score when you know it’s probably not all that great feels as motivating as getting on the scales when you’re already feeling fat. Aint nobody lining up to do that.
The thing is, just like avoiding exercise and a poor diet can lead to diabetes and a raft of other health issues, poor credit health can lead to more expensive credit down the track, being declined for finance, or even problems when you come to finally getting that mortgage. It can also lock you out of credit altogether, which is a whole other basket of problems.
Taking control of your credit is super important for your wellbeing too. Credit card debt is one of the leading wellbing detractors, and has been measured by the NAB Wellbeing Index to have a -29% impact on your overall wellbeing. It’s crazy to think something as small as a piece of plastic could dent your mental health by nearly one-third
We caught up with Andrew Boyd from new app Credit Health, that wants to take the pain out of confronting your credit score, plus help you take real action to fix it, if it needs a little TLC.
What inspired you to build Credit Health, and why now?
Now that Comprehensive Credit Reporting (CCR) has started rolling out - meaning that both positive and negative behaviour is incorporated into the score - we thought that public awareness of credit scoring and its critical role in long term financial health was even more important than ever.
We’ve always watched for developing trends in international markets and it was clear that tracking your credit score using an app had become entrenched in countries such as the UK and USA. Australia was, by comparison, underserved in this regard. We decided to change that, and Credit Health the app was born.
I have to admit, I was pretty intrigued so I did give the app a go. Getting my result was great (and a whole lot less scary than I imagined), but what I really wanted to do next was get myself up a level! How can people go about improving their credit score, because that side of the industry feels very opaque.
There are several things you can do, but let’s start with one of the main ones: pay your bills on time.
Late payments, for example to service your credit card or home loan, will negatively impact your credit score. Since your payment record is available on your report, a lender can see this detail when carrying out risk profiling during their approval process.
Therefore, if you apply for a credit card or loan, that late payment might be enough to cause the bank to decline your application. So it’s not just bad for your credit score—it’s bad for your future financial opportunities!
I was reading the description of ‘Excellent’ and it seems like this score could be out of reach for a lot of millennials - given many don’t have ‘a good credit mix’ and could be maxing out their percentage of available credit to take advantage of reward points. How can we have the best of both worlds?
There are multiple factors that affect your credit score, with available credit being just one of them. If you are using a credit card to earn rewards, and you are putting a considerable amount of spend through it, make sure you pay it off in full each month. Not paying off your balance in full means you will incur interest on the balance, which will negate the value of the points you’ve earned. It also means your available credit will decrease as your balance grows.
I feel like there are a lot of urban legends about applying for credit cards as being ‘score damaging’. Is this myth actually true or can you bust it?
It depends. There are many variables at play. For example, if you are approved for a new credit card, then you will have additional available credit. In one way, that’s a great thing since having more available credit should improve your credit score. It’s also possible that having too much available credit makes you more of a risk to a bank considering a new application (a situation that’s more likely to occur if you’ve got a credit or charge card issued in your name with a large credit limit that you use for business expenses).
Many of the banks we work with state that you should not have applied for multiple credit cards recently in their eligibility criteria. And they are less likely to approve an application when you have had multiple applications for credit rejected within a short period of time. Credit enquiries are also available on your credit report—and banks can see them—so if you do apply and are rejected, then avoid the temptation to keep trying until you are approved, since you might be making things worse.
OK, let’s address the After Pay elephant in the room: How are buy-now, pay-later platforms affecting our credit health and score, if at all?
It’s a mixed bag. Some of them will report late payments and defaults to the credit bureaus, and that will then negatively impact your credit score. I do not think any of them operating in Australia report positive behaviour to credit bureaus and so they are not a way to build your credit score. This may change in future though, perhaps after regulators take a closer look at how they operate.
Credit and debt makes many of us feel anxious and out of control with our money. What behavioural measures can we take so that credit cards don’t control us, and we control them?
I am a firm believer that a credit card should be viewed as a tool. Just like a hammer, you can use it for good or bad. That being said, it is important that they are used wisely. Try and use your credit card for the purchases you were going to make anyway and then pay off your statement in full each month. Don’t leave that to chance either. Set up a direct debit so that this payment happens automatically, thereby protecting yourself from missing a payment because you forgot and then having to live with the effect it has on your credit report.
When we’re using credit cards right, what benefits can we get for our finances overall?
I am a proponent of the value proposition in earning reward points and redeeming them for business or first class long haul flights. How might this benefit your finances? Well, since you only have to pay for taxes and fees when redeeming points for a flight, you save a lot of money. But more excitingly, it opens up travel experiences that you would otherwise most likely be unable to afford.
If you had a magic money wand, what would you like to see happen in Australia, for young people when it comes to money?
Australia lacks a credit builder product, even though there is a large addressable market for it. Credit reports do not cross borders, so new immigrants have to start from scratch. Many younger Australians have no credit history either since they have only ever used debit cards and may not even have so much as a mobile phone contract to establish some kind of report. Both these groups, as well as those who have made mistakes and damaged their credit, would benefit from such a product. Again, Australia is lagging behind in this regard—there have been credit builder products in both the UK and USA markets for years.
Interesting…there’s a good idea for a budding entrepreneur…
Finally Andrew, what does “Wealthness” mean to you?
Playing the long game and making the right decisions now so you can benefit from it later.
What you don’t know can hurt you in credit score land. Get onto checking out your credit score and start setting up direct debits to manage those payments! Far easier and more profitable than losing weight, trust me.