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Understanding Your Credit Score

When it comes to credit, knowing the score is important. That’s why Luma breaks down the credit scores, ratings, and more for you.

Credit Scores vs. Ratings

These terms are used somewhat interchangeably, but there is, however, a subtle difference. Your credit score is what’s assigned by a lender or financial institution issuing you with a product. Your credit rating is what’s issued by an independent credit reference agency.

Generally, your credit score and credit rating will be very similar though there will be a slight difference in how they’re expressed. Different lenders weight certain factors differently, meaning you can eligible for products at one company, but not another.

Those with higher credit scores and credit ratings get access to more credit products with better interest rates. If you have a poor credit rating, you’ll have a lower credit score meaning that you’ll generally pay more interest for products like credit cards. This is because lenders feel you’re more at risk of failing to repay money owed.

Credit History

Your credit history is a picture of your overall financial health, and documents things like late payments, active credit card accounts, and financial contracts in your name (e.g., mobile phone contracts). Credit reference agencies obtain records from a variety of sources to build this history and it’s an important part of your credit report.

A strong credit history shows a good track record of making payments on time and managing your finances well. A patchy credit history negatively impacts your credit rating. The best way to improve your credit history is to pay bills on time and responsibly manage things like credit cards.

Credit Report

Your credit report includes your credit history along with personal information about where you live. Residential history is an important component in your credit report as it helps establish that you’re financially stable and also helps verify your identity (important for financial institutions in fighting fraud.) If possible, make sure you’re on the Electoral Roll to confirm your identity. Often, this omission negatively impacts your credit report. (Not to mention, getting on the Electoral Roll means you’re able to vote.)

New to Credit? Poor Credit?

Credit scores, ratings, and reports. It can all seem more complicated than it needs to, especially if you’re trying to move on from a poor credit history. Fortunately, by following the basics (pay your bills on time, ensure your residence is documented, use credit cards and other financial products responsibly) you can rebuild your credit and benefit from greater access to credit products.