Credit Score: What is it and Why Does it Matter?

CEO Finance 360 Degrees
Your credit score can make or break your home loan application. Here's the skinny on credit scores.

You have likely heard the term credit score, but did you know that the way banks measure your credit score has changed recently?

Previously, Australia only tracked negative credit events however as of 2019 positive events are now also visible under ‘comprehensive credit reporting’ rules. This change provides a more balanced view of your creditworthiness and recognizes your good habits – not just your mistakes.

This change also means you have more power to positively influence your credit score.


Ways to Influence Your Credit Score

Here is a quick reference summary of the most common ways you can hurt or help your credit score.



Paying bills on time

Making late payments on your card or loan

Avoiding ‘shopping around’ with credit applications and then not following through

Defaulting on bills and payments of at least $150 (overdue by 60 days or more)

Paying off outstanding loans and credit cards

Applying too often for credit cards or loans

Making your regular repayments on time

Applying and being rejected for a credit card or loan

Not having a high outstanding balance on your credit card

Getting a balance transfer on a credit card but not repaying the balance transfer by the end of the promotional interest period

Having a long-term account and favourable history

Getting multiple balance transfer cards one after another

Lowering your credit card limits or closing off the credit cards you do not use

Court judgments against you regarding debt such as bankruptcy.

Why Does a Credit Score Matter?

Before deciding whether lending you money, lenders will do a background check into your credit file. The credit score is an overall measurement of your credit history. This helps a lender work out their risk when lending you money.

The credit score is ranked on a numerical scale ranging from 0 to 1200 and is divided into five credit score categories (below average, average, good, very good, and excellent).  

The higher your credit score, the more likely lenders will approve your loan, lend you more, or offer you better rates.

It Pays to Monitor Your Score

If you are planning on buying a home or investment property soon, then you should be keeping an eye on your credit score.

You can access your credit score for free once a year from the agencies below

  •  Equifax
  • Check Your Credit (illion)
  •  Experian

Your credit report will contain information about your identity like your name, address, date of birth, and driver's licence number. It will also provide a comprehensive list of your credit activity.

  • Any recently active credit products including their opening date, closing date, provider, and balance.
  • Your repayment history on your credit products, including repayment amount, frequency, how often you paid by the due date, and if you missed any repayments.
  • Any defaults on bills, credit cards, or loans. This includes things such as utility or phone bills over $150which are at least 60 days overdue.
  • Your credit application history, including the number of applications you have made, the amount you borrowed along with any loans you have guaranteed.
  • Any debt agreements, personal insolvencies, bankruptcy’s, and court judgments in your name.
  • Any previous credit report requests made by credit providers (not the requests you make yourself).

Cleaning Up Your Credit Score

If you find your credit score is not as good as you would like, you may be able to clean it up.

While you cannot remove legitimate strikes on your file, you can report errors that negatively affect your credit score. Clerical errors or misunderstandings sometimes result in false defaults, debts listed twice, or wrong loan amounts being stated.

A credit repair service or financial counsellor can help you get your credit score back in line.

Another thing you can do to improve your credit score is to reduce your credit card limits, pay off any personal loans, and show 6 months or more of no defaults or late payments.  

While you may not be able to get a squeaky-clean record, you could bump yourself up into a better credit score band.

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