A credit score is a number calculated from data held on your credit file and used by lenders and other credit providers in their decision-making process when you apply for credit.
The score is designed to give an indication of your credit worthiness.
Your credit file is very important, as it is one of the primary pieces of information relied on when you apply for any type of loan or credit. This could be a home loan, car loan, credit card, personal loan or mobile phone plan.
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In Australia the most common holder of consumer credit file information is Equifax (previously known as Veda, and before that, Baycorp).
Your credit score with Equifax is represented as a number between -200 and 1200, and gives potential lenders a way to rank your overall credit risk. It also includes any details of current and past company directorships, and link to credit files under previous names such as maiden names.
A poor credit score can lead to a higher interest rate or your application being declined all together.
Lenders are not obligated to provide specific details on why your application has been declined, so if you are unsure about how your credit file looks you are able to request a free copy and any good credit advisor would be able to help discuss the report with you.
What can affect a credit score rating?
A credit score is calculated from information available to the credit reporting agency and includes:
– Your personal details, such as your age, employment and where you live
– The type of credit providers you have used
– The amount of credit you have borrowed
– The number of credit applications and enquiries you have made
– Any unpaid of overdue loans or credit
– Any debt agreements or personal insolvency agreements relating to bankruptcy.
From September 2018, it is now compulsory for certain credit providers to provide positive reporting on conduct on loan accounts back to credit reporting agencies.
Against many people’s understanding, in the past good conduct on your loan accounts had no positive effect on your credit score.
How can I clean up a poor credit score rating?
1. The first step in cleaning up your credit score rating is to obtain a copy of your credit report. You are able to access your credit file for free on the Equifax website.
2. You should check your personal information listed is correct. This includes your name, date of birth, drivers licence number, address and employment details.
3. High number of credit enquiries. Every time you apply for credit it is recorded on your file. A large number of enquiries over a short amount of time will lead to a lower credit score. Minimising the number and frequency of enquiries will improve your credit score.
4. Good conduct on existing loans and credit. Ensure repayments on things such as home loans, car loans, credit cards and utilities such as phone, gas and electricity are always made on or before their due date.
5. Updating personal information with credit providers. Make sure if you change address, phone number or email address that you update all lenders and service providers. This will help ensure that your bills are going to the right place and don’t get overlooked, resulting in late or missed payments.
6. Credit Repair Services. In certain circumstances, defaults and court judgements can be removed using the services of a credit repair agency. You may wish to challenge these with the credit provider directly, but the process is complex and success rates are improved when you use a professional to help. Most reputable credit repair services will offer a no result no fee service, where you only pay if the credit impairment is successfully removed.
7. Subscribe to reporting services available via credit reporting agencies which notify you when a new enquiry is made on your file. This can help in early identification of identity theft and fraudulent activity on your credit file.
Speaking to a licensed credit expert is a great place to start when it comes to making your credit score as high as possible – they will be able to identify any issues and give advice on the steps to improving your credit score.
For a full list of his services, visit www.bellpartners.com
