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Now, more than ever, is the time to check your credit score


Chantelle Smith.

Chantelle Smith.

What is a credit score?

A check is conducted when you apply for credit with a financial institution.

Your credit score is calculated by combining all your financial information. This can include the number of credit enquiries made by lenders, loan repayments, default information and late payments.

An excellent credit score is usually between 800 and 1000, while a below-average is a score is about 550.

David Boyd, from credit comparison website Credit Card Compare, predicts that in the future, a credit score will directly impact the interest rate offered by a financial institution.

“I believe the day will come where Australians with a better credit score will be offered lower interest rates, which already happens in the US and UK,” he says.

Indigo Finance credit and lending advisor Melanie Cunliffe says many people don’t know what their credit score means until they are in the market for a mortgage.

“Suddenly, they start to question if they’ve been doing the right things with their money,” she says.

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“People aren’t sure just how much information a credit score contains, and don’t realise that such things as purchasing a dining table on interest-free terms appears like a credit facility on your full credit report.”

After a change to credit reporting came into effect on July 1 last year, positive credit information on credit histories is now also mandatory for all credit providers.

Called Comprehensive Credit Reporting, it sees more positive credit data included on credit reports, so that lenders now have a better idea of your financial habits when making loan assessments.

The change in reporting means that your credit score has probably changed, too.

Meanwhile, a second research report found that consumers are confused about what’s included in their credit report, despite it being an important record of their financial health.

Conducted by consumer education website CreditSmart, it found that almost three quarters assumed their credit score was included in their credit report, while one in five mistakenly believe that marital status, income, insurance claims and even traffic fines are listed.

Credit reporting expert for CreditSmart, Geri Cremin, says if you are applying for a credit card, a personal loan or even to change your mobile phone provider, your credit report can make or break your application.

“Your credit report is a way for lenders to see how you handle the credit you currently have and assess whether the credit you’re applying for is right for you.”

By law, your credit report can only be accessed by lenders in limited circumstances, Cremin says.

“For example, your credit report can’t be accessed by a real estate agent when you apply to rent a house, an insurer when you apply for car or home insurance, or by a potential employer when you apply for a job,” she says.

Bear in mind that mistakes are made in credit scores and credit reports, too.

If one or the other isn’t accurate for some reason, you can dispute it and have it removed from your file by talking to the company that reported it.

However, the best way to maintain your credit score is to pay your bills on time, pay your balances each month and slow down your purchasing.

Tips to improve your credit score

  • Regularly check. You can check it at these spots online: Credit Card Compare: Creditcardcompare.com.au; Equifax Australia: Equifax.com.au; Dun & Bradstreet: CheckYourCredit.com.au; Experian Credit Services: experian.com.au; and
    Get Credit Score: GetCreditScore.com.au
  • Check the information on your credit file to make sure it is correct.
  • Avoid negative entries
  • Defaults, court judgements and excessive credit applications will all a negative impact on your score, so avoid them.
  • A default stays on your credit report for five years but even a late payment can stay on your credit report for two years. The more late payments on your credit report, the more your credit score will drop.
  • Make payments reliably.
  • Make mortgage, loan and credit card repayments when they are due.
  • If you fall behind on a repayment, catch up within the “grace period” of 14 days, so you won’t be reported as being in arrears.
  • Consecutive late payments and paying bills long after they are due to the point where a debt collector is chasing you will impact your score.
  • Consolidate and lower your limits.
  • Aim to have just one credit card with a limit lower than your monthly take home pay.
  • The fewer credit facilities and the smaller their limits, the better your credit score.

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