How can young people start building their credit history?

Just as a journey of a thousand miles begins with a single step, great credit can begin when you’re young. Your money management background can have lasting repercussions later in life, making it important for young Australians to start building positive credit habits as soon as they can.

What is your credit history?

Your credit history is a record of your financial activities, especially borrowing and paying back money. This information is collected by credit reporting agencies from your credit file and used to calculate your credit score.

Your credit score or credit rating is a measure of your money management abilities. Australians with a history of borrowing and repaying on time are more likely to have high credit scores, while Australians who regularly make late repayments, or have defaults or bankruptcy in their history credit, are more likely to have low credit scores.

Banks, lenders and other credit providers perform credit checks when you apply for credit products, such as personal loans or credit cards. Your credit score is used to quickly gauge whether you’re likely to make your repayments on time or whether there’s a higher risk of default.

Banks and finance companies aren’t the only ones using credit scores. Telecom companies and energy retailers also do credit checks when you apply to become a customer, so they can get an idea of ​​how likely you are to pay your bills on time.

Customers with good or excellent credit are more likely to have their credit applications approved quickly and may be eligible for special offers with lower interest rates or fees, or higher loan amounts.

Borrowers with poor credit scores may have a harder time borrowing money – their applications may take longer to process while the lender does thorough checks, and they may need to meet eligibility criteria more stringent or pay higher rates and fees.

Borrowers with bad credit may find that their credit applications are completely denied unless they are able to provide additional security to help offset the lender’s financial risk.

When does your credit history start?

Australians don’t automatically start with a credit history. You also don’t ask for a credit score like you do for a tax file number.

Instead, your credit history begins the first time a credit event is recorded and reported to a credit bureau. This usually happens after the age of 18, due to age limits on most credit products.

A credit event doesn’t have to be a credit card or personal loan application. This can be something as simple as applying for a postpaid phone contract or putting your home’s phone, internet or electricity in your name. When the supplier performs a credit check as part of your application, that will be the start of your credit history.

Having no credit score isn’t the same as having bad credit, but it can make you kind of a “nobody” to credit providers. This can sometimes mean that you won’t be able to access some of the best deals from some credit providers (as well as phone, internet and energy retailers), until you establish a good or excellent credit rating.

The length of your credit history can be a factor in determining your credit score, so the sooner you can establish your credit history, the more you can potentially increase your credit score in the future.

How can you build your credit history?

  • Apply for Manageable Credit Products: Some banks and lenders offer special products intended to serve as your first credit card or personal loan. These may charge relatively low interest and fees, although they may not offer as many bells and whistles as rewards programs.
  • Limit your credit requests: Applying too much for credit in a short period of time can trick lenders into thinking you’re having trouble managing your money and are in desperate need of credit. This could see your loan application rejected and risk damaging your credit score.
  • Track your invoices and reimbursements: Although paying a bill or credit refund a day or two late should not be recorded in your credit history, a bill that is significantly overdue (for example, more than 14 days late) will recorded as a late payment on your credit report, potentially affecting your credit. the story. If you fall further behind on your payments (for example, more than 60 days late on a payment over $150), you risk a defect appearing in your credit history, which can more seriously affect your score. credit.
  • Consider keeping credit cards open: Even if you don’t use a credit card often, the longer you can keep it open without negative events, the more it could potentially improve your credit history. Just beware of the fees you may have to pay and the temptation to spend a lot of money with your credit card.
  • Maintain some stability: Your job and address are also recorded on your credit file, so changing careers and moving frequently could risk lenders viewing you as unreliable.
  • Check your credit history: You can check your credit for free on RateCity to get a better idea of ​​how lenders see you when applying for credit. If you find errors in your credit file (they happen), contact the parties concerned to have them corrected.

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