Your credit rating is one of the most important aspects of personal finance. It can affect your ability to access a home loan or personal loan, secure a rental property, land a job or even sign up for a phone or internet service. That’s why it’s important to check and know your credit history and make sure there are no errors on your credit report. In this blog post, we discuss what a credit score is and how to maintain it.
Whilst it’s important to know what’s going on with your credit report, checking your file too regularly can have a negative impact. Too many enquiries have the ability to lower your score each time you check, so the key is to know your score and be aware of your credit history.
What is a credit score?
Your credit score, sometimes also called a credit rating, is a figure that is calculated based on your financial history and is used in determining your ability to pay back any credit you may be applying for. Typically, your credit score is calculated as a number ranging from 0 – 1200. That number represents your overall financial position and is the key to whether or not a lender will be willing to provide you credit, and at what rate they may be willing to lend you money. Along with your overall credit score, you will usually also have a credit report.
A credit report is a detailed summary of your current and previous loans, credit cards and other forms of credit. It also contains information about your repayment history and highlights any areas where you may have missed or been late in making repayments.
How can I check my credit score?
There are three main credit reporting agencies that are used throughout Australia, and these organisations are the trusted gatekeepers of credit history and reporting for most people. They are Equifax, Experian and Illion, and most credit providers in Australia (including banks and credit unions) will provide information to each of these agencies to help keep track of previous applications and repayment history.
You can request a free copy of your credit report from either of these organisations to find out what your current credit situation looks like.
There are also a number of third-party online credit reporting websites that can provide information about your credit history, however, they typically rely on information provided by the 3 main agencies for their reporting. Whilst these websites can be useful for you to get insight into your credit history, they are often used as a marketing vehicle to promote other financial services to you, so be mindful of that.
What information is stored on my credit report?
Your credit report is a detailed summary of your current credit situation, as well as a snapshot of your recent credit history. It contains information such as any accounts or loans you currently have, and also contains information about credit you have applied for previously, even if you didn’t open that account. Your credit report also contains a breakdown of your past repayment history and reports any repayments that have been missed or were late.
Your credit report also contains all of your personal information such as your name, gender, date of birth, driver’s licence number, employer, and current and previous address so this document should be treated as highly private.
Other information which you will find on your credit report:
Credit products you’ve had in your name over the last two years:
- type of credit product (such as credit card, store card, home loan, personal loan, business loan)
- credit provider
- credit limit
- opening and closing dates of the account
- joint credit applications
Repayment history
- repayment amount owed
- when those payments were due
- payments not made within 14 days of the due date
Financial hardship information
If you have ever entered into a financial hardship arrangement with a credit provider, it may also appear on your credit report. Typically the only information that is recorded is the duration of the arrangement, and the listing is usually deleted after 24 months.
Defaults and non-payments
Any non-payment of a debt (called a ‘default’) to a credit provider will usually be reported to a credit reporting agency. Defaults usually also include payments not made for utility and phone services, as well as loans and credit cards.
Defaults are recorded on your file under the following circumstances:
- The amount owed is above $150
- the provider has contacted you about the payment either by phone or in writing
- The due date is past 60 days or more
A default report stays on your credit file for five years, or in some cases as much as 7 years, so it’s important to keep track of your obligations otherwise you may have a long road to recovery.
Any bankruptcies or debt agreements, court judgments, or personal insolvency agreements in your name are also kept on your credit file.
Can I change anything on my credit report?
Generally speaking, your credit report is not changeable in the short term, and can only be improved over time with good credit behaviour (such as making repayments on time and keeping open credit accounts to a minimum). However, you may notice that your report has errors or incorrect information. In this case, it’s important that you contact your credit provider and request for them to amend your credit report if the error is legitimate.
Errors found on your credit report can have serious consequences for you and your lending ability, so it’s important that you understand what is on your file before you plan to apply for any credit.
How do I keep my credit score high?
The best way to maintain your credit score is to ensure that you are able to manage your financial commitments before applying for any credit. Even enquiries and applications for credit facilities are recorded, and the activity of applying for credit itself can sometimes be taken into account when applying for loans and credit.
Maintaining good financial discipline and ensuring that your repayments are met on time is the best way to keep your credit score in check. If you do find that you are likely to fall behind on a payment, the best thing you can do is be proactive and contact your credit or service provider to inform them and put an agreement in place to help manage the repayment. Doing this will ensure that you can still maintain a healthy credit report, and save yourself from bad reporting that may cost you in the long run.
