Your credit score is one of the most important numbers in your financial life. It can affect everything from your ability to get a mortgage or car loan, to the interest rate you pay on those loans. So it’s important to understand what factors can cause your credit score to change.
What is a credit score?
Your credit score is calculated based on the information on your credit report at a given moment in time.
Your Equifax credit report is updated monthly as your repayment history information from accounts is updated, and as new data is added or removed from your credit file. Information from credit sources might include enquiries and overdue obligations. It can also include public records such as defaults, court judgments and bankruptcy proceedings.
How your score is calculated
Depending on fresh data discovered on your file, your credit score may differ. A new credit enquiry, default, or bankruptcy might harm your rating. Similarly, when information disappears from your file, your credit score can change. The records on your file have a limited lifespan and will drop off after that time period has passed.
The age of your file’s information might have an impact on your score. An enquiry that is one years old has a distinct impact on your score than an enquiry that is four years old, for example. You may notice some fluctuation in your score as the data ages.
It’s also important to know how much your credit score impacts what you can borrow.
What causes your credit score to change
Your credit score in Australia can change due to several factors:
- Payment History: Consistently paying bills on time can improve your score, while late or missed payments can negatively impact it. This includes payments on credit cards, loans, mortgages, and utility bills.
- Credit Applications: The number of credit applications you make can affect your score. Multiple applications in a short period may lower your score. Each application results in a hard inquiry on your credit report, which can impact your score for up to two years.
- Types of Credit: The variety and number of credit accounts you have can influence your score. This includes credit cards, personal loans, mortgages, and other forms of credit.
- Credit Utilization: While not explicitly mentioned for Australia, how much of your available credit you’re using can affect your score in some credit scoring models.
- Length of Credit History: The duration you’ve had credit accounts open can impact your score.
- Serious Credit Infringements: Bankruptcy, defaults, debt arrangements, court judgments, and other serious credit infringements can significantly lower your score.
- Identity Theft: Unauthorized use of your identity to open credit accounts can negatively affect your score.
- Changes in Credit Report Information: As negative information ages and eventually falls off your credit report (typically after 5-7 years), your score may improve.
- Financial Hardship Arrangements: If you agree to a financial hardship arrangement with your lender and comply with it, it shouldn’t negatively affect your score.
It’s important to note that some factors, such as checking your own credit score, your income, rent, phone bills, savings, investments, and assets, do not directly affect your credit score in Australia.
