Every time you apply for credit, spend using credit, or make (or miss) a repayment on a loan or a utility bill, you influence your credit score. In turn, your credit score is used by lenders to determine whether or not to give you more credit. That’s why keeping a good credit score is so important. It can mean the difference between an approval or a decline next time you apply for a loan. So, when did you last check your credit score? And do you know how creditworthy you are?
Good vs. bad credit score
In Australia, there are three main credit reporting agencies which collect information from credit providers like banks, credit unions, store credit issuers and payday lenders – including phone and utility providers.
Along with public record information sourced from ASIC and the Judiciary System, this information is stored in your credit report and assigned a credit score. Together, these two make up your credit profile.
Every time you apply for credit or a utility, make a repayment or miss a repayment, this information is added to your credit report and your credit score is calculated accordingly. When you make a credit application, lenders will access your credit profile and use the information in your credit report along with your credit score to determine whether or not to approve your application.
While each of the credit reporting agencies has its own algorithm for calculating your credit score, they all work on the same assumption: The higher your credit score the better, because it shows you have a reliable borrowing and repayment track record, which means lenders see you as a lower credit risk.
A bad credit score could mean some lenders are reluctant to lend to you, or you may be charged a higher interest rate or offered less flexible terms, because lenders perceive those with a bad credit score as someone who is less likely to repay their loan.
Take a look at this handy infographic from credit reporting agency, Equifax, which explains really clearly what makes up your credit profile, and what information about you credit providers and lenders can access.
Factors affecting credit scores
Here are some of the common factors that could impact your credit score, and how to get around these:
- Missing or late repayments: Pay your bills on time and in full, set up auto payments to avoid forgetting to make payments. Positive repayment information is also stored in your credit report and positively impacts your credit score.
- Too many credit applications or enquiries: Limit the number of new applications for credit or loan products you make unless you’re confident your application will be successful and only if you actually need the loan.
- Negative information like defaults, bankruptcies and court judgements against you: Lower your credit limit – or reduce the number of credit cards you hold - to avoid spending more than you can afford to repay.
- Personal information including employment history and length of time in your current residence: Staying in your job and home longer implies stability and security.
If you’re feeling overwhelmed by your current financial situation, it’s vital you seek advice sooner rather than later.
Start by regularly checking your credit report to ensure the information held in there is correct – you can update your credit report by contacting one of the credit reporting agencies.
Then get in touch with a Mortgage Express broker. From mortgage deferrals to refinancing to consolidate debt, our team can assist you with financial advice to help you get back on track again.
While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken by Finservice Pty Ltd (Mortgage Express) for any errors or omissions. This publication does not constitute personalised financial advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication. A Disclosure Statement is available on request and free of charge.
Finservice Pty Ltd (Mortgage Express) is authorised as a corporate credit representative (Corporate Credit Representative Number 397386) to engage in credit activities on behalf of BLSSA Pty Ltd (Australian Credit Licence number 391237) ACN 123 600 000 | Full member of MFAA | Member of Australian Financial Complaints Authority (AFCA) | Member of Choice Aggregation Services.