What Affects Your Credit Score?

By H&R Block 6 min read
If you’ve watched any American tv shows or films, there’s a good chance you’ve heard about the credit score system and how important it is for managing personal finances in the US. But did you know we have a similar system here in Australia?

Many people are unaware that they even have a credit score, which can make things difficult when it comes to applying for a loan or credit card. But it doesn’t have to be a problem, especially if you take a few basic steps to ensure your credit score is strong.

How does the credit system in Australia work?

It’s quite simple really. When you undertake any positive financial activities (such as paying your bills on time) your credit score goes up – and the higher it is, the better your chances of getting a bigger loan or better rate. In the same way, whenever you do a negative activity (such as defaulting on a loan or missing a payment) you could reduce your score, making things hard for you if you ever want to apply for credit.

The good news is that all credit providers, including banks, are part of the Comprehensive Credit Reporting (CCR) system through which customer credit histories are all shared so that credit scores can be accurately assessed.

What can I do to increase my credit score?

Every time you do something positive in your finances, you’ll make your score go up. Paying your bills on time is a great way to do this, and it’s also a good idea to have and responsibly manage some debt to prove you can pay it down. This means not owning a credit card at all might actually work against you, as it doesn’t demonstrate you know how to manage debt.

Age also works in your favour, and as you get older and manage your finances sensibly, you’ll naturally increase your score over time. Having a substantial financial history is also important, and it is important to have a good debt record as this can really help to boost your score.

Activities that could have a negative effect on your credit score include being overdue with debt payment or bills. Defaulting on a loan or declaring bankruptcy can also be damaging to your credit score, along with any bad debt or a negative court judgement.

Applying for multiple loans or credit cards when you have a low score and being declined can also have a further negative effect on your score. So if you apply once and get knocked back, maybe take a few months to really actively work on improving your score. Once your numbers are better, you can try applying again.

Interestingly, using a credit transfer to pay off outstanding balances can actually have a positive effect on your credit score, so this could be a good way to help get on top of your debts and increase your overall score.

What is the first step to improve my credit score?

The best place to start is with knowledge. Even if you suspect you might have a poor score, there is no point in burying your head in the sand.

If your score if lower than you would like it to be, then get started immediately on taking some positive steps to improve your numbers.

The information in this blog post is general in nature and does not constitute personal financial or professional advice. It is not intended to address the circumstances of any particular individual. We do not guarantee the accuracy and completeness of the information and you should not rely on it. Before making any decisions, it is important for you to consider your personal situation, make independent enquiries and seek appropriate tax, legal and other professional advice.

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