What does your credit score really mean?

If you don’t know much about how they figure out your credit score, what your credit score is or even how to find out what your credit score is, you are not alone.

So, during this blog we are going to investigate all of these things and hopefully you will leave with some enlightenment on the facts of your credit score and how to improve or even correct your credit score!

What is your credit score?

Firstly, let’s start with “what is your credit score?”

Your credit score is a number based on a critique or assessment of your credit at one point in time.

Your credit score helps lenders decide whether to lend to you, how much they should lend and possibly what interest rate they will offer you.

The next thing I can hear you asking is “How do they calculate my credit score?”

They calculate your credit score by assessing:

  • Personal details.
  • Type of creditors you have used.
  • Amount of credit.
  • The number of applications and enquiries.
  • Any unpaid or overdue credit or loans.
  • Any debt agreements or bankruptcy agreements.

www.moneysmart.gov.au

There are a few credit reporting companies with whom the banks or lenders can go to, to get these credit scores and reports from. Most of them have similar information on you and use this to calculate that score.

A credit score is usually a number (depending on which reporting company is used) between 0 – 1,000 or 1,200. It is then put into a five point scale of how risky it is for lenders to lend to you.

  • Excellent – you are highly unlikely to have any adverse events harming your credit score in the next 12 months
  • Very good – you are unlikely to have an adverse event in the next 12 months
  • Good – you are less likely to experience an adverse event on your credit report in the next year
  • Average – you are likely to experience an adverse event in the next year
  • Below average – you are more likely to have an adverse event being listed on your credit report in the next year

www.moneysmart.gov.au

Once they have all of this information it gets collated into your credit report.

What is my credit report?

Your credit report is a report about your credit history.

This is the type of information you will find in your credit report:

  • Personal details – Your name, date of birth, current and past addresses, employment and driver’s licence number.
  • Joint applicant – A joint applicant’s name will appear if you applied for the credit with another person and both your names appear on the credit card contract.
  • Credit cards – Information about the credit cards you hold.
  • Arrears brought up to date – Any debts that were unpaid and overdue and have now been paid or settled.
  • Defaults and other credit infringements – These could be utility bills or loan payments which are 60 days or more overdue and where debt collection activity has started.
  • Credit applications – Any credit you’ve applied for including loans you have been the guarantor on. (Find out how guaranteeing a loan can affect your credit report.)
  • Debt agreements – Any bankruptcies, court judgements, debt agreements or personal insolvency agreements in your name.
  • Repayment history – Your repayment history on credit accounts like your home loan, personal loans or credit cards, has been collected from December 2012. The repayment history information includes: the date your credit payments were due, whether or not you made the payments by the due date (no payment or partial payment by the due date are both considered missed payments), and the dates you made any missed payments (but not the amounts that were missed).

There are a few companies with whom you can get free credit score reports.

You can get varying results from different companies because your credit score can change from month to month as your finances change.

Why should I keep my eye on my credit rating?

Not only does your credit rating fluctuate as your circumstances change, but being diligent can help protect you from identity fraud.

Checking and keeping an eye on your credit report can ensure your information is correct and that you have made all the enquiries and listings on the report.

This helps alert you quickly if criminals steal your identity and sign up credit in your name.

What do I do if the information on my credit report is incorrect or fraudulent?

You can ask for your credit report to be updated or changed if a listing is incorrect or out of date free of charge.

However if you do not agree with what is on your credit report you can ask for additional comments to be made.

To do this you need to contact the reporting creditor to ask them to remove the report.

If your creditor won’t release the report then you can speak with your relevant Ombudsman.

Finally, although credit scores and credit ratings all sound a little scary and unmanageable the power is in the knowledge of what they are and how they work.

Before you go and apply for your next loan apply to one of the above companies and get a copy of your credit rating so as you can negotiate a better deal or interest rate and get in the game!