How to get your finances in order before EOFY
With the turn of a new financial year comes a great opportunity for Aussies to take stock of their finances. Think of it as getting a head start on your spring cleaning - but financially.
It's a particularly good time to check your credit score, and see if you can make any improvements before the new financial year begins.
What impacts my credit score?
Your credit score is something that most lenders look at when they are deciding whether or not to give you access to finance.
Your credit score begins to drop once you start exhibiting some bad financial behaviour - that can mean accruing bad debts, like credit card debts, or not paying your bills on time.
In fact, your credit score can drop by 22 per cent if you miss just one credit card repayment. It can drop a whopping 42 per cent if you miss three or more repayments within three months, according to Experian's 2019 'Know Your Score' report.
Does tax debt impact my credit score?
While the end of the financial year means many Aussies are sorting through receipts and gathering PAYG summaries in preparation for receiving their tax returns, sometimes we need to pay more to the Australian Taxation Office (ATO) instead.
You'll need to wait until you lodge your tax return to know if you owe the ATO money - once you lodge, they'll send a notice of assessment confirming whether you're in the red.
While personal tax debts count as any debt, and can therefore affect your credit score if you do not pay them, sole traders and business owners who default on a business tax debt will also receive a hit on their personal credit scores.
This is because the Government recently introduced legislation to make business owners personally accountable for the business' debts to the tax office.
If your business:
- Has a registered Australian Business Number; and
- Has a tax debt, of which at least $100,000 is overdue by more than 90 days; and
- You're not effectively engaging with the ATO, then -
the ATO could disclose the business' tax debt to credit reporting bureaus, and could impact your ability to get finance or credit in both a business and personal capacity.
How does my credit score impact my ability to get a loan?
Your credit score is sort of like your financial portrait. Lenders review your credit score when you make applications for loans with them, and it can sometimes make or break your ability to access finance with that lender.
However, they don't look at your score in isolation. They'll look at your entire credit report, which includes your borrowing history, your employment history and your credit score.
If you have a poor credit score, some of the top tier lenders, like the big four banks, won't grant you access to finance. If you have an average score, some lenders may offer you higher interest rates, or ask for a larger deposit.
If you've got a high credit score, you'll be deemed a low-risk borrower. This means you may find it easier to get approved for a loan.
How can I sort out my finances before EOFY?
Black marks, like defaults and bankruptcies, can stay on your credit file for five years and serious credit infringements can remain on file for up to seven years - so it is important to stay on top of your finances.
While there's no silver bullet to a perfect score, there are a few ways you can start to increase your score over time, starting now.
Confront your debt
If you really want to get a grip on your finances, you're going to need to confront your debts, like your credit card or loan debt.
While it can be daunting, figuring out exactly what you owe and how much your minimum monthly repayments are, it is a great way to put you back in the driver's seat and motivate you to pay off those debts quicker.
You'll need to figure out how much you can afford to repay, and whether you can start to pay off more than just the minimum repayments.
Once you know what you owe, and how much debt you have, you should consider putting it all into a spreadsheet, and creating a monthly budget to ensure you're ahead of your debt.
When it comes to your business' tax debt, if you can't afford to pay it outright, the ATO may help you set up a payment plan. You can either contact them on 13 11 42, or set one up using myGov.
Set up direct debits for your bills
Like we mentioned above, not paying your bills on time can lead to a significant drop in your credit score.
A great way to ensure you never forget to pay a bill is to set up a direct debit with the supplier where possible. If you prefer to do things manually, keep a calendar on your fridge and jot down the dates when your bills are due, or set reminders in your phone.
If you haven't paid a bill because you're in a dispute with the supplier, the best way to ensure that this doesn't affect your credit score is to pay off any outstanding amounts, and dispute the bill afterwards.
If you're struggling to meet your bill payments, have a chat with your provider. They may be able to offer you a payment plan.
Check your credit score often
We encourage you to check your credit score every 3 to 6 months, even if you don't plan on applying for any kind of loan or credit.
This is because there could be errors on your file, which could reflect anything from a simple mistake by a lender, to identity theft.
You can easily check your credit score for free here at SocietyOne. Our credit score report will provide you with powerful insights, to see how banks and lenders view your score.
You'll also gain access to nifty tips and tricks on how to improve your score. Check your score here!
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