Amanda Smith
Georgia Rose
Athena Cocoves
Your credit score is a snapshot of how you’ve managed credit — such as loans and credit cards — over the years. It helps determine your creditworthiness to lenders, which in turn influences your borrowing power.
You should request a free copy of your credit report and credit score at least twice a year to monitor your credit activity and make necessary adjustments.
Did you know?
In 2017, the Australian Government mandated positive credit reporting. Before this time, only negative data was collected. The new law means you and lenders get a more comprehensive picture of your credit history.
Factors that affect your credit score
The following factors typically affect your credit score:
- Repayment history. Missed payments on credit facilities, like loans and credit cards, can negatively affect your score. The good news is that on-time payments can positively affect it.
- Credit applications. The number of times you apply for credit can also affect your score. Try to keep credit card applications, for example, to a minimum — only apply for cards you have a good chance of being approved for. You may also want to avoid applying for short-term credit, if possible, such as fast loans, as they can have negative effects on your score.
- Type of credit. The number of different credit facilities you have may affect your score. For example, having a mix of credit accounts, like a credit card and a mortgage, can help improve your rating.
- Serious credit infringement. Bankruptcy, defaults, debt arrangements, insolvencies, court judgements and other serious credit infringement can have lasting negative effects on your score. If you’re struggling with debt, consider financial counselling.
- Length of credit. The longer your credit history, the more information lenders have to determine your creditworthiness. This can be good or bad, depending on your history — years of timely payments may translate to a higher score, but a long history of late payments and defaults can damage it.
- Personal data. While your personal details are not directly used to calculate your score, stability factors, like how long you’ve lived at the same address may be used to assess risk.
🤓 Nerdy Tip
Knowing what goes into your credit score is empowering, but don’t get too caught up and lose sight of your financial goals. Take the above factors with a pinch of salt — if you don’t need a loan, getting one just for the potential boost in your score probably isn’t wise. Similarly, if moving house makes the most sense for you personally and financially, don’t stay put just to appease your credit score.
How long does information stay on your credit report?
| Factor | Length of time |
|---|---|
| Serious credit infringements. | Seven years. |
| Bankruptcies and debt agreements. | Two or five years, depending on the circumstances. |
| Court judgements, credit enquiries and defaults. | Five years. |
| Current debt obligations and repayment history. | Two years. |
| Financial hardship information. | One year. |
Factors that won’t affect your credit score
Factors such as your salary, owning high-value assets, having cash in the bank, your relationship status or having dependants do not directly affect your credit score.
A business credit report does not impact your personal score, as it is separate from your personal credit history. However, if you use a personal credit card for business-related expenses, the payments will affect your personal score. This is why it’s best to keep your business and personal finance completely separate.
» MORE: When is it worth getting a business credit card?
How is a credit score calculated?
Each credit bureau uses a slightly different formula to calculate a credit score and does not share the details of the algorithms. This variation means your credit score may differ from one bureau to the next, and you may not know why one is higher than another.
Equifax shares how a range of data points from your credit report are weighted when calculating your score:
| Weight | Factor |
|---|---|
| 40% | Credit enquiries and applications |
| 38% | Repayment history |
| 7% | Adverse events |
| 6% | Personal information |
| 4% | Information on credit accounts |
| 3% | Commercial credit information |
| 1% | Address information |
| 1% | Length of credit history |
For Equifax, credit enquiries, applications, and repayment history account for over 75% of the score. So, if you just focus on making payments on time, avoid applying for additional credit and get a report once or twice a year, you should make great strides with your rating.
It’s also important to know that each credit bureau uses a different scale. So, it’s not just the weighting of these factors that varies from one bureau to another — the number that makes a ‘good’ credit score also differs.
| Equifax | Experian | illion | |
|---|---|---|---|
| Below Average or Low Score | 0-459 | 0-549 | 1-299 |
| Average, Fair or Room for Improvement | 460-660 | 550-624 | 300-499 |
| Good | 661-734 | 625-699 | 500-699 |
| Very Good or Great | 735-852 | 700-799 | 700-799 |
| Excellent | 853-1200 | 800-1000 | 800-1000 |
How to get a good credit score
To get a good credit score, keep it simple and follow two rules:
- Pay your bills on time, every time. If that’s not possible and you miss a payment, settle any overdue debts as soon as possible — generally at least within 60 days — so they don’t appear as defaults on your credit report.
- Minimise credit enquiries until you reach a ‘good’ credit score. For Equifax, a good credit score is 661 or above. Thoroughly research different lenders and only apply for the most suitable credit products (when you’re in a position to).
You can further improve your credit rating by:
- Reducing your debt so you’re not at risk of missing a payment or defaulting on a loan.
- Paying off debt but keeping accounts open, such as a free, long-standing credit card account with an excellent repayment history.
- Effectively managing different types of credit, such as a mortgage, personal loan, credit card and car lease.
How to fix mistakes on your credit report
Mistakes happen, even in your credit report. If you think there’s an error that’s negatively affecting your score, you can request an amendment through the three major reporting bureaus. You can then ask the agency to investigate and update your credit report, which usually takes 30 days.
- For Equifax, visit the Corrections Portal.
- For Experian, check you have the supporting documents and request a correction.
- For illion, lodge your update through the Public Access Centre.
While these bodies are expected to have accurate, relevant, and complete information, it’s essential that you stay on top of your financial situation with regular credit checks. Plus, there’s no charge for requesting updates to your credit report.
» MORE: Should you trust credit repair services?
The impact of good credit behaviours compound
Make credit work for you, not against you, to help you achieve your financial goals. It pays to invest time and effort in achieving an excellent credit score. A healthy score opens up doors to more lenders, better products and competitive interest rates.
Buying your dream house, starting a business, taking an overseas trip or upgrading your car can all be made possible with a good credit rating.
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