What is a Credit Score and how do I improve it?

Updated: Jun 11, 2021




Firstly what is a credit score?


Your credit score is a number between 0 and 1200. The data to obtain this score is sourced from a variety of different financial providers, recording your habits, and behaviors to determine your risk factor. The higher the number, the lower risk you are in the eyes of a potential credit provider. The lower the number, the higher the risk and the the less likely you will be able to secure credit. A score of 800 or more is considered to be fairly good, whereas 700 or 600 and below, you may start to find it hard to obtain finance.


Your score is determined by a number of factors:

  • Your repayment history - have you been meeting your commitments on time? Your credit report keeps a 2 year history or your repayments, so 1 missed payment on a credit card can negatively impact your score for up to 2 years.

  • Applications you've made for credit - how many times you have applied for finance in the last 5 years . Around 8 enquiries is ok but any more starts to have a negative impact. Shopping around for finance is a huge mistake people make as they don't realise that every credit provider will mark their file as an enquiry, negatively impacting their score.

  • Types of Applications - personal finance such as home loans and personal loans are considered ok. Credit cards, revolving lines of credit and pay-day loans such as Zip pay and Zip money have a negative impact on your score.

  • Unpaid debts or defaults - this is usually where your debt has gone to an external debt reconciliation company like Dunn and Bradstreet or Baycorp. Defaults have a negative impact and will stay on your file for 5-7 years. If you have Unpaid defaults it is unlikely that you will be able to secure finance from any mainstream lender. If you are able to secure finance with a default on your file, you will most likely be charged a higher interest rate or a risk fee.

  • Adverse information like court writs and judgements - information obtained from third parties including bankruptcy. These will seriously impact your score and can be difficult to remove. Even if you have been discharged from bankruptcy, you are still required to disclose the details around the insolvency for every finance application you make thereafter.

  • Credit limits - how much you have applied for and have you applied for an increase on the existing limit?

  • Personal information - name, address, phone number and employment history/ stability.

  • The age of your credit report - often young applicants with minimal debt and a new file will have a low score simply because there is not enough information to determine risk.


How long does information stay on your credit file?


Two years

  • Repayment history information

Five years

  • Any credit enquiry

  • Overdue accounts listed as a payment default

  • Overdue accounts listed as clear-outs

  • Writs and summons

  • Court judgments

Seven years

  • Serious credit infringements

Although it may be tempting you stick you head in the sand regarding your file, the best thing to do is apply for a report, read through it thoroughly, and look at ways to improve your score.


Source: www.equifax.com.au


Here are some recommendations to increasing your Credit Score:

  • Set up a budget first and foremost so that you know exactly what your monthly outgoings are.

  • Set up direct debits for all of your accounts and make sure they are debited at least 3-4 days before the payment is due to allow for weekends and public holidays.

  • Keep your bills account separate from your spending account to ensure there is always enough funds in the account for the direct debit. This will help you to avoid missed payments at late fees.

  • Close any old accounts, unused revolving lines of credit, credit cards as well as Zippay and Zipmoney. Keeping these open will impact you score.

  • In fact, avoid Zippay, Zipmoney and Afterpay altogether. These are viewed as payday loans i.e. can't afford to wait until you get paid so need to obtain short term finance. These types of facilities have a negative impact on your score so try to save up for purchases instead.

  • Don't shop around for finance. See a Mortgage Broker who can work out the best option for you and submit your application to one lender. If it is a car or a personal loan you are after the same rule applies, see a broker to shop around for you without marking your file.

  • If you move house, let your financiers know what your new address is. Saying you didn't hear from the lender is not a valid reason not to pay a bill.

  • If you can't make your repayments, enter into a financial hardship agreement with your lender before you fall behind. This will not affect your credit score if you are upfront about it and don't wait until things get out of hand.


If you would like us to run your credit report and book in a complimentary credit check appointment please get in touch, otherwise order your report HERE


For more information about your credit score, click on the LINK


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