As we get closer to the festive season, think about how your shopping habits can affect your credit score. During this time, when you’re likely to spend more on gifts, entertainment, and travel, it might be tempting to use easy money like credit cards, store cards, or Buy Now Pay Later (BNPL) schemes.
These easy money options let you make big purchases without feeling the immediate financial burden. Some people don’t pay much attention to it, even if they’re good at repaying on time. But these services can make your credit score a bigger problem, especially if you plan on buying something significant like a car or a home.
This month, we want to share a client’s story to show how relying on easy credit can cause unexpected problems, affecting not just your money situation but also your credit score.
The Client’s Story: A Warning About Credit Score Problems
This month, we’re sharing a client’s story to explain the unexpected problems that can happen when you rely on easy credit. Despite having a steady job and living at the same address for a long time, this client had a credit score of 420, much lower than the good credit score of 661 or higher. Surprisingly, her low score wasn’t because she missed payments or had money troubles. It was because she used easy credit for big purchases.
The things she bought included a new phone, solar panels, air conditioning, a laptop (through a store card), and home appliances after renovating her home—all paid for with interest-free loans and credit facilities. Even though she always paid on time, her credit score dropped when she decided to buy a car. This led to high interest rates for personal and car loans because of her low credit score.
The Hidden Impact on Your Credit Score
While it’s easy to get credit through interest-free loans and flexible payments, it can give you a false sense of security. The benefits of spreading out the cost of purchases over time might seem good, but the details of credit scores are often overlooked in this situation.
Your credit score isn’t just about paying on time. It looks at different things, like the types of credit you use and the variety of your credit history. Using different types of credit, like interest-free loans, store cards, or BNPL schemes, can affect your credit score more than you might think.
It’s important to know that even if you always pay smaller transactions on time using services like Afterpay and ZipPay, the overall impact on your credit score can be significant. This can affect your financial flexibility when you want to make bigger purchases.
Understanding these details is important for keeping a good credit profile. As you handle your finances, especially during major purchases, think about how it might affect your credit score. Knowing this helps you make smart choices for your long-term money goals, protecting not only your current financial situation but also your credit score for future opportunities.
The Importance of Knowing About Finances
Our client’s story shines a light on why understanding money matters is so important, especially when it comes to various ways of borrowing. Knowing how your money choices impact your credit score is like having a financial superpower – it helps you make decisions that fit your long-term goals. By being aware of these financial intricacies, you not only protect your money in the present but also set the stage for future opportunities to thrive and grow.
The Next Steps
To improve her credit score, the client is doing two things. First, she’s talking openly with her finance broker to understand the types of finance available and how they affect her credit score. Second, she’s actively working to reduce her credit use by using a credit card with a 55-day interest-free period instead of BNPL and store cards.
Remember, closing accounts is important. Store cards and BNPL schemes stay on your credit history even with zero balances unless you cancel them. Figuring out the ins and outs of the finance world means finding a balance between using convenient credit options and keeping a healthy credit history.
In conclusion, easy money can make life easier if you use it responsibly and understand its impact. But, as this client’s story shows, being cautious and informed about easy credit is crucial to avoid hidden problems with your credit score.
Ready to Make Your Financial Future Secure?
If you’re thinking about finance for big purchases, like a home, car, or investment property, don’t let your credit history be a problem. Our expert mortgage brokers are here to help you through the process, providing solutions that fit your money goals. Get in touch with us today for a consultation and start securing a brighter financial future.