Having a good credit score affects your ability to secure loans, rent a property, and sometimes, even get a phone contract. But if you’re new to the country or haven’t used credit before in Australia, building credit history from scratch can be a challenge.
Online loans can be a potential tool to build your credit score, but it’s important to tread carefully. Responsible use of credit, like making repayments on time, is key to demonstrating your creditworthiness.
Understanding Credit Scores in Australia
Your credit score is a number that reflects your creditworthiness, usually up to 1,200, basically, how likely you are to repay money you borrow. It plays a big role in securing financial products in Australia, like loans, credit cards, or renting a house.
Here in Australia, your credit report tracks your credit history. This report includes details like credit accounts you hold, repayment history and any defaults. There are three main credit reporting bodies that keep track of this information: Equifax, Experian and Illion.
A good credit score varies depending on which credit reporting body you check with. Here’s a quick guide to the ranges for each which are considered good:
- Equifax: 661 and above
- Experian: 625 and above
- Illion: Scores between 500 and 699
Knowing your credit score is important. You can check your credit score for free from any of the credit reporting bodies mentioned.
Can Online Loans Help Build Credit?
Building a good credit score is important in Australia, and it all comes down to responsible borrowing. This means paying back your debts on time, every time. Online loans can be a tool to establish a positive credit history, but there’s a catch. Making repayments on time shows lenders you’re a reliable borrower and helps build your credit score. Make sure you can comfortably afford the repayments before taking out any loan.
Choosing the Right Online Loan for You
With so many online lenders in Australia, it can be tempting to jump at the first offer you see. But before you apply, it’s important to shop around and compare different loan options.
Here are some key things to consider:
- Loan amount: Only borrow what you genuinely need and can comfortably repay. Don’t get caught out by borrowing more than you can manage.
- Interest rates: Interest rates can vary significantly between lenders. A lower rate means you pay less overall.
- Repayment terms: Think about how long you need to repay the loan and choose a term that fits your budget.
- Fees: Be aware of any upfront or ongoing fees associated with the loan.
Taking out a loan is a big decision. By comparing rates and terms from multiple lenders, you can find the best deal for your situation.
Using Online Loans Responsibly to Build Credit
Rushing into a large loan can backfire if you can’t keep up with repayments. Here’s a step-by-step guide to using online loans responsibly:
- Start small: Apply for a manageable loan amount such as a small cash loan. This minimises risk and shows lenders you’re a responsible borrower.
- Make timely payments: Timely repayments are crucial for a positive credit history. Set up automatic repayments to avoid missed due dates.
- Consider extra repayments: Whenever possible, throw extra cash at the loan to reduce the term and improve your score faster.
- Don’t bombard yourself with applications: Applying for too many loans in a short period can hurt your credit score. Build credit with one loan at a time.
Alternatives to Online Loans for Building Credit
Building credit in Australia doesn’t have to involve online loans. Here are a few ways to get started:
- Become an authorised user: Ask a trusted friend or family member with a good credit history to add you as an authorised user on their credit card. Just remember, responsible credit card use is key.
- Secured credit card: Get a low-limit secured credit card. You put down a deposit that becomes your credit limit, and by making on-time repayments, you build your credit score.
- Be a timely bill payer: Show lenders you’re responsible by paying your phone, utilities, and other bills on time each month.
Building credit takes time and discipline, but these alternatives can help you on your journey! For some alternative loan options that may not impact your credit score, check out Friendly Finance’s no-credit-check loans.
Building a good credit score in Australia is the key to financial opportunities, but be mindful of lenders who don’t follow responsible lending practices. The Australian Securities and Investments Commission (ASIC) is a great resource to learn about your rights and responsible credit. Don’t rush into online loans – explore all your options for building credit responsibly.
