Factors Affecting Credit Scores

Written by Lisa Bridgett on June 5, 2024

Factors Affecting Credit Scores

My Story

It wasn’t until I was in my early 20s, after a few failed attempts at trying to obtain finance to purchase a new car (which I didn’t need), that I was educated about how applying for finance with multiple lenders can negatively affect your score! I feel that we should have been taught these things in school!

In Australia, credit scores play a crucial role in the financial lives of individuals, impacting their ability to obtain credit and the terms under which it's offered. Here's how credit scores work in Australia (so you can learn from my mistakes):

Calculation: There are 3 main credit reporting agencies in Australia, Equifax, Experian, and Illion. They will combine all of your credit history into your credit report, which includes any credit you have applied for, all your repayment history on your current liabilities, any defaults you have incurred, and bankruptcies. Once these factors have been factored in, they will calculate your credit score. This is a numerical representation of all these factors combined and shows lenders your creditworthiness.

Range: Credit scores in Australia typically range between 0 and 1,200 or 0 and 1,000, depending on the credit reporting agency. The higher the score, the more favourable you are to the lender, while a lower score may suggest you are a higher risk. Credit reporting body Equifax categorizes your credit score into 5 categories:

 

Excellent: 833 – 1200
Very Good: 726 – 832
Average: 622 – 725
Fair: 510 – 621
Low: 0 - 509

 

Factors Impacting Credit Scores: There are several factors that may impact your credit score so you should be mindful of these points:

  • Payment History: Paying your credit obligations on time for every payment is an imperative part of keeping your credit score strong
  • Length of Credit History: The longer you hold a positive credit history, the more likely your score is to increase.
  • Recent Credit Applications: The more credit inquiries you make with different lenders can negatively impact your credit score, as it may show the lender that you may be at an increased risk.

Impact on Borrowing

Your credit score plays a huge role in determining your ability to obtain finance, as the lender will review your score when you apply for any credit cards, personal loans, or mortgages. The lender will assess the risk you pose based on the overall application and your credit score.

In summary, credit scores in Australia are a critical part of the financial landscape. They influence the ability to apply for credit and the cost of borrowing. Maintaining a positive credit history and regularly monitoring credit reports can help you to manage your credit scores effectively and achieve your financial goals.

Are you still confused with all this credit score jargon or did you make the same mistakes I did?

Contact us today for a chat.  about how you can prepare yourself to purchase a home!

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