How do I find out what is affecting my credit score?
To find out what’s affecting your credit score, you can obtain a copy of your credit report from a credit reporting agency.
In Australia, you’re entitled to one free credit report per year from major agencies like Equifax, Experian, and Ilion. It’s important to check out your options before paying for a credit score if the agencies are asking for money or a paid subscription.
Reviewing your report will help you identify any negative entries, such as missed payments or defaults that may be impacting your score. Additionally, some financial services offer free credit score monitoring, which can provide insights into changes in your score and the factors influencing it.
What are the five main factors that affect my credit score?
While there are a wide range of factors that affect your credit score, here are 5 of the most common to help give you an understanding of how it works.
- Payment History: Timely payments on loans, bills and credit cards positively impact your score, while missed or late payments can significantly lower it.
- Credit Utilisation: This refers to the ratio of your current credit card balances to your credit limits. Keeping this ratio low (ideally below 30%) is a good rule of thumb.
- Length of Credit History: A longer credit history can enhance your score, as it provides lenders with more data on your borrowing behavior.
- Types of Credit: Having a mix of credit types, such as credit cards, personal loans, and mortgages, can positively influence your score.
- Recent Credit Applications: Frequent applications for new credit can signal risk to lenders and may lower your score.
Does checking my credit score affect my credit score?
No, checking your own credit score will not affect your credit score. This is known as a “soft inquiry” and is different from a “hard inquiry,” which occurs when a lender checks your credit as part of their decision-making process for a loan or credit application.
Regularly checking your own score is a good practice to stay informed about your credit health without any negative impact.
Does applying for a credit card affect my credit score?
Yes, applying for a credit card (or multiple credit cards in a short period of time) can affect your credit score. When you submit an application, the lender performs a hard inquiry on your credit report, which may temporarily lower your score.
Additionally, if you’re approved and increase your credit utilisation by using the new card, this can also impact your score. However, responsible use of the card, such as making timely payments and keeping balances low, can also help improve your score over time.
How long does my credit history last?
In Australia, your credit history can last for several years. Positive information, such as on-time payments and successful credit accounts, can remain on your credit report indefinitely.
However, negative information, such as defaults or bankruptcies, typically stays on your report for up to five years. After this period, it should be removed, allowing your credit score to improve if you maintain good credit behaviour moving forward.
