Credit card and credit rating

I’ve recently applied for a credit card so I can get a better credit rating for when I begin the process of buying an investment property.

I was just listening to a podcast where a financial planner spoke about how credit cards improving credit rating is not a thing in Australia and that only occurs in America.

Can someone clarify if this works in Australia or not?

Cheers,
Adam

 

I can confirm that credit cards do not improve your credit rating in Australia. Nor does any other debt like a personal loan or even a home loan. The best outcome you can expect from these is to stay about neutral.

The best way to improve your credit rating is to pay your bills on time.

 

Its ironic but credit harms your credit rating.

Certain forms of credit are more harmful than others. Credit cards are one as they are typically a revolving facility that can be $0 today and $10,000 tomorrow. And at a high rate.

However never accessing credit hampers a credit rating.

 

Windmill, whats your fico score?

 

Every single time I apply for credit card my credit rating drops. Sometimes substantially. It does recover slowly though.

 

Just received a notification from credit savvy that my credit rating has just dropped. From 836 to 815, so it's not a big deal, but there doesn't seem to have been anything to trigger it. No new credit enquiries on my file, no new debts or credit cards, no missed payments or adverse events. Is it possible they are just re-evaluating risk levels generally given the recession? Has anyone else had this happen recently?

 

Nothing to do with the Recession, yes it does happen from time to time, they find out new information that they didn't have previously - Credit Savvy (Experian) ain't great at keeping up to date with what debts you have in my experience.

This is an extract from Credit Savvy ie. Experian
Score fluctuation is quite a normal occurrence. As data ages it becomes less relevant, this can in some instances cause your score to drop.
As Experian credit scores are created using a statistical algorithm, which is always recalculating scores, based on data, the age of data, new data and changing data your score can frequently change.
A small drop in your score should not be of concern, between 10-100, is quite normal.

 

As I mentioned in my original post, though, there is no new information on my credit report.

 

happened to me about 12 months ago, big drop of almost 100,
absolutely no change to any of my circumstances,
googled it and many other people experienced the same,
a few people said it wasnt uncommon

edit;
Sudden Death on Credit Savvy
here is a link of people saying the same as you, but no real explanation why

 

Did you read the rest of my response? I'll post it again below - This is direct response from Experian (Credit Savvy)

Score fluctuation is quite a normal occurrence. As data ages it becomes less relevant, this can in some instances cause your score to drop.
As Experian credit scores are created using a statistical algorithm, which is always recalculating scores, based on data, the age of data, new data and changing data your score can frequently change.
A small drop in your score should not be of concern, between 10-100, is quite normal.

 

Yes, I read the rest of your post -- I had also read this on the Experian website before reading your post. I found it neither interesting nor surprising.

A more relevant quote from the Experian website is: "The companies that produce credit scoring models revise them every few years to reflect changes in consumer behavior."

If you review my OP, I wasn't asking for reassurance about my own credit score -- I was asking whether others had also seen a recent change that might reflect a change in the scoring model in the current environment. It seems from the lack of responses that the answer is "no".

 

Thanks for the feedback but it wasn't meant to be either of those, rather it explained why you saw a change in your score without any new information on your credit file, it has absolutely nothing to do with recession, never has.
Have a great day

 

My understanding is that only home loan and credit card payments are currently reported to the credit reporting agencies.

So you would think that having a credit card and keeping your payments current would show lenders that you are a responsible borrower at least and may improve your chances of being approved for a home loan. That's how positive reporting is supposed to work anyway. I'm not sure what effect applying for a credit card would have on your actual credit score though.

If I were you I would access one of the free credit score websites like Credit Simple and check your current score and then go and apply for a credit card with a limit of $500. See what effect it has on your score and then track how your score changes as the bank reports every month that your account is up to date. Worst case scenario you can always cancel the card if you need to.

 

... and utilities, personal loans, hire purchase and any other form of credit.

Having credit cards shows lenders that you're willing to take on extra unsecured and uncontrolled debt. Every person I've met who had credit problems had a lot of unsecured debt.

 

Personal loan repayment history also apparently shows up on your credit report but the others that you mentioned only show up on your credit report if you miss a payment. I'm talking about positive credit reporting, the type of reporting that can positively affect your credit score and your chance of being approved by a lender.

I can't imagine lenders having too much of an issue with a credit card with a $500 limit, especially if your credit report shows that your repayments are always up to date. Surely a lender would prefer to see evidence that you can pay your credit on time rather than you having a completely blank credit history.

 

A common misconception, done many deals where people have never had credit before with no issues.

 

I don't doubt that but surely if an application is a bit borderline any kind of repayment history can only be a benefit.

 

Savings/ability to save is more favourable than a debt being paid on time, no debt is preferable.

Getting a credit card and paying it off on time each month before trying for a home loan is like an old wives tale, it pops up every now and then but is no longer relevant in my experience.