With the introduction of credit scores, the playing field around obtaining credit has changed dramatically in the last year here in Australia. Many people were concerned about the move — and possible restriction of credit — but a surprise outcome has been the ability for you to actually use your credit score to look for better deals for your loans and finance arrangements.
Small business people are among the most likely to seek credit (and unfortunately be refused) so the ability to review and actively manage your score is a great step forward. Until now people have only dealt with credit bureaus when they get rejected for credit. They had to pay for a credit report from companies like Veda Group, one of the main credit reporting agencies, in order to see what defaults or other adverse information was on their file.
With the recent launch of GetCreditScore, which uses VedaScore, borrowers can access their credit score at any point in time for free and without adding another enquiry record to their file. The service, which launched in early September, was so popular that it crashed in its first days, but the initial rush is over so you can easily access it now.
What credit scores do I get?
A VedaScore falls in a range between 0 and 1200. The higher your VedaScore, the better your credit profile and the better you may appear to credit providers. Below are the Veda rankings to help you understand your relative position and credit strength against other Australians:
For small business owners, it is also important to monitor your credit score with D&B, another credit bureau. D&B has a Small Business Risk Score [PDF], which is the only score of its type in Australia. The score indicates the creditworthiness of a small business by predicting the likelihood of it entering bankruptcy in the next 12 months.
The score is derived from a number of key factors, including data from business-to-business trade payments, the time elapsed since the last consumer default, and the number of credit enquiries.
How to boost your credit score
As a small business owner, you need to be aware of your personal credit score and the likely factors that would affect it. Here are some basic tips to boost your score:
- Pay your bills and loans on time every month. Arrange direct debits on payday to ensure bills get paid on time and when you have money in the bank.
- If you foresee a payment issue, arrange a plan with credit providers. Most providers are willing to work with you provided you communicate with them.
- Avoid submitting many credit applications during a short period of time. Sometimes it can be a red flag for creditors.
If you find you have a poor score then do the following:
- Obtain and review a full credit report
- If it contains mistakes or inaccurate information, request a correction from the credit provider or reporting body
- If you’re experiencing hardship, contact a financial advisor or arrange a new payment plan with creditors
It’s easier than ever to take back control of your credit. Push for better deals where you score high, and be on the front foot when you spot problems.
Finally, as a small business be prepared to use some of these credit bureau services before you offer credit to other businesses. Sometimes that new prospect is too good to be true, and a check of their credit score may reveal the truth.