Your credit score is a crucial financial indicator that lenders, landlords, and other institutions use to assess your creditworthiness. It represents your creditworthiness and reflects your ability to manage credit responsibly. Several factors can impact your credit score, including your payment history, credit utilization, length of credit history, types of credit accounts, and recent credit inquiries. Understanding these factors and how they can affect your credit score is essential in maintaining a healthy credit profile and gaining access to favorable credit terms.

In Australia, there are three primary credit reporting agencies: Experian, Equifax (previously known as Veda), and Illion (formerly Dun and Bradstreet). These agencies gather your financial data and compile it into a comprehensive credit report.

What affects your Credit Score?

Some factors that can impact your credit score:

• Payment History
  Payment history is a crucial factor that can significantly impact a person’s credit score. It reflects a borrower’s track record of timely or late payments on their credit accounts, such as loans, credit cards, and mortgages. Timely payments demonstrate responsible financial behavior and can have a positive impact on credit scores, while late payments or payment delinquency can result in negative entries on the credit report and lower the credit score. The length of the payment history also affects credit scores, with a longer and consistent payment history generally viewed positively by lenders. Public records related to payment issues, such as bankruptcies or tax liens, can have a severe and long-lasting impact on credit scores, making it challenging to obtain credit or favorable loan terms.
• Length of Credit History
  The length of credit history is a crucial factor that can impact an individual’s credit score. A longer credit history with responsible credit management, including on-time payments and diverse credit accounts, can positively impact the credit score. It demonstrates financial stability and responsible credit behaviour, which can result in a higher credit score. On the other hand, a shorter credit history or no credit history may result in a lower credit score, as lenders may view it as a higher credit risk. It’s important to maintain a responsible credit behaviour, keep older accounts open, and have a diverse mix of credit types to help build and maintain a favorable credit history and score.
• Number of Credit Inquiries
  When it comes to credit inquiries, it’s important to be mindful of how many times you apply for credit. Each time you apply for credit, such as a loan or a credit card, it may result in a credit inquiry. Multiple credit inquiries within a short period of time can negatively impact your credit score. It’s like going on a shopping spree and trying on multiple outfits at once – it may raise eyebrows and make lenders question your creditworthiness. So, it’s important to be strategic and apply for credit only when necessary to avoid too many inquiries that can potentially lower your credit score as while applying for any new form of credit, lenders usually run a hard check through your credit report.
• Amounts owed
  Your credit score can be significantly impacted by your debt load, commonly referred to as your amounts owed or credit utilisation. Your credit score may suffer if you have excessive debt in comparison to your credit limits. It resembles bearing a big financial weight, and it might indicate to lenders that you might struggle to manage further credit. High sums outstanding could be viewed by lenders as a bigger credit risk, lowering credit score. To maintain a healthy credit utilisation ratio and improve your credit score, it’s critical to keep balances low, pay bills on time, and manage your obligations properly. Credit utilization ratio is determined by dividing the total amount of revolving credit you are currently using by the total sum of all your revolving credit limits. It’s a way for lenders to assess how much of your available credit you are using, and it’s an important factor that impacts your credit score.

Credit mix

Individuals with excellent credit scores usually have a varied mix of credit accounts, which may consist of secured and unsecured loans, such as a car loan, credit card, student loan, mortgage, or other types of credit. Credit scoring models use the number and types of credit accounts a person has as a gauge of their ability to handle a range of credit products effectively. Therefore, having a diverse portfolio of credit accounts can indicate responsible credit management and positively impact one’s credit score.