What is credit scoring and how does it work?


Close-up Of Person Hands With Digital Tablet Showing Credit Score At Desk

Do you know what your credit score is?  Many lenders now use your credit score or rating as one factor to determine whether or not to lend you money. This score is calculated based on the information in your credit file or credit report and other contributing factors such as length of time at residential address, stability of employment, overall asset positon etc. A copy of your credit score and file is available online from independent credit reporting bureaus (or agencies) such as Veda.

Your credit file is effectively a record of your credit history and you will have one if you have applied for any of the following:

  • credit cards
  • loans, such as a personal or business loan
  • a mortgage
  • a mobile phone or internet plan
  • interest-free store loans
  • utility accounts with payment terms of at least seven days.

Banks, mortgage insurers and mobile phone companies are just a few examples of credit providers and lenders who may check your credit file. They will typically do this when you apply for credit, and their decision whether to accept your application depends on the lender’s individual guidelines and criteria.

Your credit file can contain a record of overdue debts, bankruptcy and court writs. If you are rejected for a credit card, or a bank knocks you back for a loan, it could be because of an outstanding debt on your credit file.

Can shopping around for the right loan impact my credit rating?

Making multiple enquires and applications can negatively impact your credit rating as each enquiry is logged against your credit report. Any loan, mortgage or credit card application you may make will be listed on your credit report and lenders may take a negative view if they can see a large number of enquiries made in a short space of time.  This may adversely impact your ability to obtain credit.
The number of enquiries recorded on your credit report, however, is just one piece of information a lender may consider when assessing your application for credit. They will take into consideration a number of other factors in addition to your credit report to assess your application.

Your finance broker’s role is to find the most suitable overall solution for you, to ensure that you have a better chance of getting your finance approved and of course securing the most competitive rate.

Can paying my phone or electricity bill late impact my credit file?

Yes it can!  Under the Privacy Act 1988, an overdue debt can be listed on your consumer credit report when it is overdue by 60 days or more, when the debt is at least $150.

If I don’t pay the minimum balance on my credit card each month will this impact my credit report?

Close up of credit cards over grey background

Yes, it can!  From 12 March 2014 repayment history information, such as if you make your credit card and loan repayments on time, can be held on your credit report.  Whilst one late repayment, depending upon how late it was, followed by making your repayments on time, may not significantly impact your credit worthiness, a number of late payments could be an indication you are in financial stress  and may negatively impact your credit report.

If I am refused credit, will it impact my credit report?

If you’ve been declined for credit by one credit provider and you continue to make a number of applications, the resulting enquiries on your credit report will negatively affect your chances of obtaining credit in the future.

From 12 March 2014 information on when an account is open and closed can be held on your credit report. This, together with your repayment history, will help lenders get a clearer picture on your credit obligations and can be taken into account in their assessment a credit application you make.

If you’ve been refused credit, you have a right to obtain your consumer credit information free of charge within 90 days of being declined credit. 

young couple worried home in stress sitting at living room couch accounting debt bills bank papers expenses and payments feeling desperate in bad financial situation

There is no “normal” finance story

You are unique and the same applies to your credit profile.  It’s our job at Buurman Finance Solutions to get to know you.  Our team know what questions to ask to ensure you make the right start.

Call Buurman Finance Solutions today to discuss your finance story.

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Article written by Sarah Rigby from Buurman Finance Solutions

 *Information supplied by Veda