How Does Credit Score Work and How to Get First Ever Credit Card?

LAzro on 13/05/2024 - 19:09
Last edited 13/05/2024 - 20:55 by 1 other user

Hi everybody, I'm looking at my credit score (via ClearScore) and it's such a mess.

My legal name hasn't updated after I changed it a year ago or so. Experian has my old address from 5 years ago on record. My closed Optus accounts are there. My rent, existing energy and gas accounts, internet provider and Afterpay are not there. Instead there is an enquiry from my internet provider. I expected Afterpay at least on my profile (although, I used only 2 or 3 times only and paid in full on the same day). According to ClearScore I have no payment history despite paying all my bills on time. I don't have any loans, debts, mortgage or credit cards so I don't really understand where they get my score from.

Experian score (750) hasn't changed in months. Illion (650) fluctuates +4/-4 with no reason.

Is this all normal?

The second part comes out of the first. The way to improve a credit score is to get some credit, right? I wanted to get my first ever credit card to start getting Velocity points. Applied for a card from NAB and got rejected. 3 months later applied for AMEX and was instantly rejected again. Both were standard Platinum Velocity cards.

I am a sole trader with ABN, annual income is around $100k which should be enough for a standard Platinum card.

What is my next step? Do I try with my primary bank (ANZ, I heard they are horrible with assessing people for credit cards)? Do I get some (profanity) card with no/low annual fee and no sign-up bonuses like AMEX Escape or Coles Rewards? Try to get a card from a non Big4 bank?

• 

  coffeeinmyveins on 13/05/2024 - 19:12

  +2

  My rent, existing energy and gas accounts, internet provider and Afterpay are not there.

  Huh? why would they be? Who told you your rent payments would be on your credit card score? lol

  This isn't the US. your credit score is literally used for one thing, to get more credit cards. Home loan lenders will barely look at it.

  stop stressing about something that 99% of people have no interest in.

  I am a sole trader with ABN, annual income is around $100k which should be enough for a standard Platinum card.

  you're proably being flagged as risky because you are a sole trader, have little savings and other reasons. Go for a very (very) low limit credit card, pay off a few bills and then close it.

  Stop trying to get an amex when you can't get anything else.

  • 

    1st-Amendment on 13/05/2024 - 21:56

    +2

    This isn't the US

    Yeah too much TV I think.
    The US Financial system is a lot more of a wild west so they rely heavily on credit scores to calculate risk. But here finance is much more regulated and protected so lenders don't need to bother so much with that song and dance routine.
    I don't even know why anyone has a credit card these days. Debit cards offer all the same convenience with none of the fees or problems.

    • 

      BillyStm on 14/05/2024 - 05:15

      Main reason for credit card being beneficial other than the points chasers is savvy home owners who utilise the CC for holding the slightly higher offset balance across the interest free period to lower the lifetime interest on the loan. Marginal but still effective and better having the money in your name then the bank just taking more interest

      • 

        1st-Amendment on 14/05/2024 - 10:37

        is savvy home owners who utilise the CC for holding the slightly higher offset balance across the interest free period to lower the lifetime interest on the loan

        Have you done the maths on this? It would work to a few dollars over the course of 30 years. And how do you get the money out of the card? A cash advance has fees which make the whole exercise pointless.

        • 

          coffeeinmyveins on 14/05/2024 - 14:23

          @1st-Amendment:

          It would work to a few dollars over the course of 30 years

          mate this is ozbargain. I've seen guys on here spend countless hours of their time to save a few bucks.

        • 

          BillyStm on 14/05/2024 - 18:56

          @1st-Amendment: Plenty of places have done the maths on this, depends on your monthly expenses going out as to the level of benefit, and they're not cash advances you use it to pay for all your bills, use the interest free period to keep money in your account. You're not literally taking money out to go and pay in cash.

          Your calculations are wrong if you think its a few dollars, obviously don't understand compounding but each to their own.

          • 

            1st-Amendment on 14/05/2024 - 19:09

            @BillyStm:

            Plenty of places have done the maths on this

            Well let's see it then…

            you use it to pay for all your bills

            Your bills are equal to your mortgage? Again, let's see this maths…

            Your calculations are wrong if you think its a few dollars

            So let's say you have a $5000 cc limit. The most you can ever save is the interest on $5000 which at 6% is $300/year or $25 for the month. ie 'a few dollars'. For that $25 you've had to dick about with all sorts of financial gymnastics to pay bills, transfer money, pay back the card each period, redraw on it again the next time. Rinse repeat for 30 years.

            obviously don't understand compounding but each to their own.

            What compounding interest? Show your maths and we'll see who understands this better.

            • 

              BillyStm on 14/05/2024 - 19:46

              @1st-Amendment: Why are you redrawing…. Offset account and redraw are very different things.

              Not sure what hoops you think you need to do gymnastics with, cc paid off once a month. Even with your quick math's id take $9k for simply making payment via a credit card and making a single payment to it from my only account which is the offset account each month.

              Its clear that its not going to be worth walking you through it…why don't you use a bank calculator and see what additional monthly amounts in offset do to the total interest over life of a loan due to their compounding nature. (once again interest is calculated daily on a loan so theoretically in your 5k spending on at least one of those days, more likely several the difference between spending straight from your account or via credit card you could have had an additional 4k in the offset at that time which is negated from the interest that is accrued on those applicable days…)

              Now add that on top of other savings you're bring in and the difference to the total interest paid over the loan puts you even further ahead.

              Like i said each to their own

              • 

                1st-Amendment on 14/05/2024 - 20:16

                @BillyStm:

                Offset account and redraw are very different things.

                You've confused words. 'Redraw' does not always mean a 'Redraw' account. If you take money out and put it back in and and take it out again you are 'redrawing' the same money. It's not new money, it's the same money being cycled about.

                Not sure what hoops you think you need to do gymnastics with, cc paid off once a month

                So you pay it each month, the consume it all the next, recycling the money, ie redrawing on the same balance each month… just like I said…

                Its clear that its not going to be worth walking you through it…

                So you put in all the effort of this post, but avoided the simple maths that would easily explain it because…???

                what additional monthly amounts in offset do to the total interest over life of a loan

                Yeah I used to work in a bank I'm very familiar with how it works.
                What you are missing is that after your first payment, used by the money from the juggling the credit on your card, you are not making any additional payments. If you wrote this down this would become obvious. Don't take my word for it, do the maths, and see for yourself.
                You put one extra payment of $5k in at the beginning, you save $25 in interest for that month, then you lose that $5k paying back your card to avoid interest, then you pay an extra $5k in the next cycle. It's you're always only ever $5k ahead (or whatever your card balance is), it's never more than that. And the savings on $5k is about $25 over 30 years.

                the difference to the total interest paid over the loan puts you even further ahead.

                Yeah, a few dollars…

                Like i said each to their own

                Write it down, you might be in for a surprise.

                • 

                  leigh8904 on 15/05/2024 - 06:36

                  @1st-Amendment:

                  You put one extra payment of $5k in at the beginning, you save $25 in interest for that month, then you lose that $5k paying back your card to avoid interest, then you pay an extra $5k in the next cycle. It's you're always only ever $5k ahead (or whatever your card balance is), it's never more than that. And the savings on $5k is about $25 over 30 years.

                  $25 interest saving per month, compounded over 30 years, at 6% interest rate on loan => $16,200 saved.

                  I would day that is more than a few dollars.

                  Calculator used: https://moneysmart.gov.au/budgeting/compound-interest-calcul…

                  • 

                    1st-Amendment on 15/05/2024 - 16:45

                    @leigh8904:

                    $16,200 saved. Thanks for doing some actual maths. It's refreshing to see that some people still know how. But one thing you forgot to include, at the end you have to then pay off the $5000 you've been juggling for 30 years, so you're down to $11,200 savings

                    I would day that is more than a few dollars.

                    $11200 sounds decent if it were cash in your hand, but for 30 years of effort constantly having to juggle money each month hundreds of times it isn't really. eg Skip a cup of coffee each week and you get the same benefit.

                    • 

                      leigh8904 on 16/05/2024 - 10:00

                      @1st-Amendment:

                      But one thing you forgot to include, at the end you have to then pay off the $5000 you've been juggling for 30 years, so you're down to $11,200 savings

                      No, you don't need to deduct the $5k from the savings, the savings is $16,200. The $5k you pay back at the end just comes from the extra $5k you borrowed at start, these 2 amounts just net out to zero.

• 

  MS Paint on 13/05/2024 - 19:26

  +1

  I thought afterpay didn't perform a credit check??

  Edit: just googled it - they don't.

  FFS - of course they won't be on your credit record.

• 

  Dollar General on 13/05/2024 - 19:48

  +1

  It’s a myth that applying for credit helps your credit score if you are new.

  There’s a number of factors that go into credit being approved. Your verifiable income (notice of tax assessment for self employed), time in your current employment, time at current address, number of dependents, your expenses etc

  • 

    umoddbro on 13/05/2024 - 21:06

    Curious does having a good credit score help with credit card application?

    • 

      Baysew on 13/05/2024 - 21:21

      Not as much as a bad credit score not helping with a credit card application.

    • 

      coffeeinmyveins on 14/05/2024 - 14:24

      Yes, but it's only one identifier.

      I'm on a six figure salary, had no open CC's or debts and was still rejected for an AMEX once.

• 

  altomic on 13/05/2024 - 22:47

  +1

  credit scores are a pile of shit. it's made up crap to create a niche for parasitic financial services that serve no benefit.

  • 

    1st-Amendment on 14/05/2024 - 19:11

    -2

    financial services that serve no benefit.

    Credit is how people get rich. If you don't understand this then that is probably why you are poor.

    • 

      altomic on 15/05/2024 - 19:46

      Credit scores and credit are two totally different concepts. If you dont understand these basic financial terms then it is probably why your comments are shitfully ignorant .

      • 

        1st-Amendment on 15/05/2024 - 21:53

        -1

        Credit scores and credit are two totally different concepts.

        Cool story. The words you used were 'financial services'.

        your comments are shitfully ignorant .

        Comedy gold!

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  bazingaa on 13/05/2024 - 23:11

  +1

  This is not US. I think I didn't have a credit file until I got a mortgage. Afterpay doesn't do a credit check.