What are credit scores?

A credit score, or credit rating as it’s often known, is a score or rating set by credit reporting bodies, based on your history of borrowing and repaying money. When you apply for a credit product, such as a buy-now-pay-later scheme, personal loan, home loan, car loan, credit card or post-paid mobile phone plan, your details are run through a credit check, so that the credit provider can assess how responsible you are with your money and whether they’re willing to lend to you. They are able to do this by reviewing your credit report, which is essentially a summary of all of the credit information from your credit file.

Your credit reputation lets credit providers with an Australian Credit Licence gauge if they are willing to approve your application or not. Usually, the higher your rating or credit score, the more chance you have of being approved. Not only that, but sometimes those with a sound credit history will be offered a more attractive interest rate or a better deal, than those with a poorer credit history.

Before you apply for any credit product, it pays to understand your credit health and how credit scores work, because flippantly applying without first doing your homework could mean being refused! By the same token, understanding what impacts you credit score and working to have a strong credit file can potentially mean negotiating with lenders for better deals.

What’s a good credit score?

How your credit score is determined

• Your debt, both past and present. If you have overdue debt, then this may be registered on your file as a ‘default’.
• Your repayment history on any personal loan, other loan or credit card that you have, or have had.
• Any store cards, including buy-now-pay-later schemes.
• The credit limit you currently have.
• Any credit accounts that you’ve opened or closed.
• The number of times you undergo a credit application in a given period. (Note that too many applications at one time can have an unfavourable effect on your credit score).
• Whether or not you hold any court judgments in relation to outstanding debt or if you’ve ever entered into a debt agreement.
• It might go without saying that having previously been bankrupt, or currently in bankruptcy will seriously affect your credit score.

Your score is also boosted up when you have positive information on your credit file, such as:

• When you completely repay a debt, and it’s listed as a ‘closed account’.
• Having some open credit accounts that are showing as paid as agreed.

What is on my credit report?

Where can I do a credit rating check?

There are other occasions when credit reports can be accessed for free, such as if you’ve been denied credit within the last 90 days or had some credit-related information fixed up.

Remember that free credit reports won’t necessarily tell you if you’re going to be approved or declined for a loan, as each lender will have its own set of criteria. Access your free credit report here.

Can I repair my credit file?

If you’ve checked, and your score isn’t where you want it to be, you could be curious if you can ‘repair’ your credit file or not. Maybe your friends have told you that a ‘credit repair’ company has ‘fixed’ their credit file — be warned, companies that claim they can ‘repair’, ‘fix’, or ‘wash’ a blemished credit history often only have the legal power to do as much as you can, and they often charge handsomely for it.

If you feel that your debt has become too heavy to handle, you can contact a Financial Counsellor for free at the National Debt Helpline, who can provide some tools, guidance and advice.

What are my options to apply to borrow money if I have a blemished credit report?

If you need to apply to borrow money, but have a less than glowing credit report, you’ll want to speak with a lender that takes a personal approach in looking at your financial situation.