What you need to know about your credit history

How is my credit score calculated?

Your credit history is used to determine your credit score and is one of the tools used by lenders to understand your track record of repaying debt as part of assessing your credit application. 

There are a number of factors that determine your credit score. 

For example: 

• The number of times your have applied for credit such as credit cards or loans;
• The type of credit you applied for such as a home loan, personal loan, credit card etc
• Payment defaults. Unpaid debts such as overdue bill payments that are more than 60 days overdue. Do your best to avoid payment defaults as they can stay on your credit report for up to five years and do not disappear after you pay the bill.
• Payment history, which shows if you paid your bills on time or missed payments.
• Adverse information like court writs and judgments

Your credit score is then calculated on this data and is based on a five-point scale - the higher the number, the better your credit score is. This score allows lenders to determine how risky it is to lend you money. If your score is on the lower end of the scale, you may not be eligible for a loan, or you might not be able to borrow as much as you had hoped.

How can I access my credit report?

There are a number of online providers that can give you access to your credit report free of charge. These include: Equifax and Experian, for example.

What if there is a mistake on my credit report?

It is important that your credit report is an accurate representation of your credit history. If you identify any discrepancies on your credit report, you should contact the relevant credit provider or credit reporting body to investigate and amend your report. 

Can I improve my credit score?

Yes. You can do this by paying your bills and loan repayments on time. 

How does my credit score impact my ability to buy property?

Your credit score and credit history show lenders how you manage your money, whether you pay your bills on time and meet your debt obligations and can therefore impact your ability to secure a home loan.

A low credit score doesn’t necessarily mean you won’t be able to get a home loan but there might be consequences. For example: you might be limited to the number of lenders who are willing to lend to you, you may face higher home loan interest rates, you may not be able to borrow as much. That being said, after 12 months of paying your loan on time and positive credit behaviour, you may be able to refinance your home loan at a more affordable rate.

If you are experiencing financial difficulty and worry that you may not be able to pay your bills or debts on time, it’s important that you notify the relevant credit providers immediately. If your bills are overdue by 60 days, credit providers will report this behaviour to credit reporting agencies and this will appear as a default on your credit report. If you’re worried that you might struggle to pay your bills/debts, you might be able to find other options with credit providers under their financial hardship policy.

For more information contact your local Mortgage Choice broker today. They can walk you through the information in your credit record and how it may impact your credit score.