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Published October 27, 2022

What Affects Your Credit Score?

Your credit scores are determined by several factors, such as whether you pay bills on time and the length of time you've used credit.

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Your credit score is a snapshot of how you’ve used loans and lines of credit, like credit cards, over the past few years. It’s a rating that determines your creditworthiness to lenders so it can have a big impact on your future financial decisions. 

Put in place weekly, monthly and quarterly habits to keep track of your spending, investing and credit so you can adjust your financial strategy accordingly. 

You should also request a credit report and free credit score at least twice a year to know your score and make necessary adjustments, especially if you’re in the red. Like getting your doctor’s check-ups, you shouldn’t skip your regular credit score check for healthy personal finances. 

Factors that affect your credit score

Your credit score is determined by the good and bad ways you use credit by sourcing both negative and positive credit information from various sources.

  • The negative credit information typically includes missed payments, defaults, multiple applications within a short space of time, the number of accounts you have (and how much of the credit you’ve used in each of them), debt arrangements, bankruptcies, insolvencies, and court judgements. 
  • Your positive credit information matters, too. This includes making payments on time, bringing accounts back up to date, paying defaults, account balances, meeting opening and closing dates, limits and usages, and removing negative data. 

The reporting agency sources up-to-date data from: 

  • Banks. 
  • Credit unions. 
  • Store credit issuers.
  • Payday lenders. 
  • Utility providers. 
  • Telecommunications providers. 
  • BNPL services. 
  • Selected information from your public records. 

The Australian Government has mandated positive credit reporting, which means that reports now offer a more comprehensive picture of your credit standing. According to leading credit bureau Experian, lenders can see if you’ve been repaying your credit card, personal loans or mortgages on time over a period of up to two years. 

More than two-thirds of Australians have experienced a rise in their credit rating score following the implementation of positive reporting. This change, in turn, has lowered their perceived credit risk by an average of 25%-35%. 

How long does information stay on your credit report?

Length of timeFactor
1 yearFinancial hardship information
2 yearsRepayment history and current credit obligations
2 yearsOpen credit accounts or recent closures
5 yearsCredit enquiries, defaults, bankruptcies, and court infringements
7 yearsSerious credit infringements.

Factors that won’t affect your credit score

While your type of work doesn’t affect your credit rating, it’s important to show that you’re a reliable bill-payer. Lenders want to see that you have ‘staying power’, or evidence of stability in your work and location. While restoring your credit score, try to avoid changing jobs and addresses wherever possible. 

Getting a pay rise, owning high-value assets, having money in the bank, your relationship status or having dependants do not affect your credit score. While there’s no direct correlation between paying rent on time and boosting your credit score, evidence of a good rental history will position you favourably when applying for a home loan.

The ATO may report debt information to credit-reporting bureaus if you own a business and fail to meet certain criteria. For example, if you have a tax debt exceeding $100,000 overdue by more than 90 days or are not communicating with the ATO to manage a tax debt, they may report that information. 

What’s important is that you engage with the ATO, or any provider for that matter, to make a plan for the repayments. Procrastinating or avoiding communication will only make matters  — including your credit score — worse. 

Make a promise to yourself to face all financial situations head-on. You’ll be better off for it and will be in a much better position to spot the actions weighing down your creditworthiness. 

How is a credit score calculated?

Each credit agency 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 agency to the next, and you may not know why one is higher than another.

Below Average0-4590-5491-299
Very Good735-852700-799700-799

Equifax, one of the three main credit reporting bureaus, uses a scoring system of 0–1,200. While not all of the details are transparent, they share how a range of data points from your credit report are weighted in accordance with the following categories: 

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’ll make great strides with your rating. 

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 within 60 days so it doesn’t appear as a default on your credit report. 
  • Minimise credit enquiries until you reach a ‘good’ credit score. For Equifax, a good credit score is one above 661. Thoroughly research different lenders and only apply for the most suitable credit product (when you’re in a position to). 

Once you’ve mastered the two factors that carry the most weight on your score, you can further improve your credit rating by: 

  • Reducing your debt and not using more than 30% of available credit.
  • Paying off debt but keeping accounts open (for the time being).
  • Effectively managing different types of credit (mortgage, personal loan, credit cards 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. 

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, and there’s no charge for requesting updates to your credit report. 

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. 

Buy your dream house, start that business, take that overseas trip, upgrade your car, and enjoy the freedom to fulfil your greatest desires, made possible by your excellent credit rating. 

About the Author

Amanda Smith

Amanda Smith is a freelance reporter, journalist, and cultural commentator. She covers culture + society, travel, LGBTQ+, human interest, and business. Amanda has written stories about planning for retirement for…

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