What are credit scores used for?

What's in this guide?

Q1: What are credit scores?

Your credit scores you actually have multiple sum up your creditworthiness in a tidy little number. They are generated by the Credit Reporting Bureaus CRBs using data from your credit report, which collects information about your financial history over time. As mentioned above, a good credit score comes with some serious perks. But if you let yours slip, it might be harder for you to reach your financial goals.

Things that can impact your credit score:

Too many credit enquiries in a short period of time
Defaults or bankruptcy
Changing your address
If you have no credit history yep, this affects your score too!

Q2: What’s the point of credit scores?

Your credit scores, and your credit file more broadly, are used in various circumstances, but the most common scenario is that you may be seeking credit to fund a significant purchase. Because your credit file contains valuable information that indicates your level of creditworthiness, it can be used as a tool to appropriately match you with a credit product.

In layman's terms, your credit score tells a lender how responsible you are with your money.

A high score means less risk for the lender. A lower score indicates a higher risk.

Lenders may also calculate their own credit score for you when you apply for a loan.

Q3: How can my scores be used?

Applying for a mortgage
Your credit scores play a role in determining your eligibility for a home loan. A mortgage is a huge commitment for you and the lender. With such a large sum of money comes a lot of risk, so the lender will thoroughly assess your financial standing before offering you a loan. This will involve a check through your credit report. With a great credit score, you could have access to higher borrowing amounts and a better interest rate. So, it pays to keep your scores in good shape if you're considering buying a home or investment property.
Applying for a credit card
We don't love credit cards – or any high-interest debt, for that matter. But, when used responsibly, they can be a handy tool to have in your arsenal. However, when applying for a credit card, your credit scores will play a role in the decision process. A lower credit score may limit your borrowing capacity i.e. your card limit and may disqualify you from being approved at all. A higher score might unlock higher-tier credit cards with great perks.
Applying for a personal loan
As with a mortgage or credit card, when applying for any type of credit product, your credit scores will be taken into account. A lower credit score can limit your borrowing capacity and sometimes even nudge you out of the running for a personal loan altogether. A higher score can give you the gift of choice between lenders, loan terms, repayment frequency and even interest rates. Your credit scores can give you the power to snag the best deal.
Applying for a rental property
This might seem like an odd one, but landlords or the agencies that look after their properties usually conduct credit checks on potential tenants during the application process. This helps them determine how reliable you are when it comes to meeting your financial obligations. If they see that you always pay your bills on time and you're not under financial stress, they will be more likely to accept your rental application. If, on the other hand, your credit report demonstrates a history of late payments, they might question your ability to pay the rent on time.
Applying for a job
As if you didn't have to jump through enough hoops when gunning for a new role. It's possible your potential employer might want to run a credit check on you during the screening process. They will ask for your consent before doing so, but with your thumbs up, they'll request your credit file from one of the Credit Reporting Bureaus. They will conduct a 'soft check' which does not negatively impact your scores. Your credit file may contain important information such as your employment history, personal details to make sure you really are who you say you are, court orders and major defaults or debts owing.
Applying for phone plans and utilities
Yep, each time you change providers or upgrade your plan it may trigger a credit check!

Q4: How can I check my scores?

With Wisr, you can check your credit scores for free and as often as you want. We do a 'soft check' which means it does not negatively impact your scores. Get your info ready and give it a crack!