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Credit Score 101

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Your credit score (or sometimes ‘credit rating’) is a number calculated from your credit history which essentially indicates how much of a risk you pose to lenders. It helps lenders reduce their losses due to bad debt. They use credit scores to determine who they will lend to, how much they will lend and at what interest rate. 

What is a credit score, and what is on a credit file?

Anyone who’s ever applied for finance or for a mobile phone contract, store card or utility such as gas or electricity, will have a credit score. Your history with these accounts is recorded in a credit report, which can be accessed by credit providers and lenders to see if they wish to approve your application.
Your credit file also contains your personal information, but also things like:

  • Any applications you’ve made for credit in the past five years.
  • Your repayment history for the past two years — including whether you made your payments on time. From March 2014 this also includes positive reporting to show good account behaviour.
  • Any credit infringements in the last seven years where you’ve missed more than six months of repayments without explanation to your creditor, for the past seven years.
  • If you’ve become bankrupt or gone into a debt agreement in the past five years (plus these details are retained for up to two years after the end of your bankruptcy or debt agreement)

If you have a default, once you’ve paid it off you can have your credit file updated so that the debt is listed as paid. However, the fact that you had a default will still be listed in your file.

What does my credit score mean?

Banks, finance companies, telecommunication companies and utility companies will look at your credit score whenever you apply for finance or set up a contract with them. 

A good credit score can help you get finance, and a bad one may mean you may have to pay a higher interest rate or even be knocked back all together.  Approval is based on each company’s own individual criteria, but the credit file helps them to understand your history and if you are likely to pay back your debt.

Can I get a copy of my report?

You’re entitled to get one free copy of your credit report every 12 months from credit reporting agencies — the most well-known are Veda Australia, Dun and Bradstreet and Experian. Beware of companies offering to get your credit file in return for a fee — you can generally get the same information for free.

What if there is a mistake on my report?

First, contact the credit reporting agency or the creditor — for example, the bank, finance company or telco who listed the entry in your credit file, and explain that there is a mistake in it. If you can’t resolve the issue with them, you may need to contact the appropriate ombudsman for help.

Remember if you do have a problem paying your debts or fall into financial hardship, it’s important to let the finance company, bank or other lender know as soon as possible. They may be able to help you come to an arrangement to get more time to pay off your contract.

It also makes sense to consider taking out insurance that covers your repayments if circumstances in your life change — you get seriously ill or injured, or you’re made involuntarily redundant, for example — which means you can’t make your ongoing payments.

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