What your credit score actually means

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Your credit rating is a score based on personal and financial information, and is calculated using the following:

  • The amount of money you’ve borrowed
  • The number of credit applications you’ve made
  • Whether you pay on time
  • Whether you have defaulted in the past
  • Whether you have overdue loans

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These are placed into a calculation that, depending on the reporting agency, will create a ‘credit score’ of between zero and either 1000 or 1200.

This ‘score’ is your ‘creditworthiness’.

In other words, whether you are a risk to a lender or not.

The higher the score the less risky you are, the lower the score the riskier you are.

credit card
A high credit score is favourable (Credit: Supplied.)

This is important because the better your rating, the better the deal you are likely to get from a bank or lender.

The better the deal on your loan, the more you save.

The more you save, the better your financial position.

This is why knowing your credit rating is important as it directly affects your whole finances, not just your ability to borrow.

woman stressed
There are simple changes you can make to improve your credit score (Credit: Supplied.)

Your credit rating looks at:

  • All applications for credit cards, store cards, home loans, personal loans, Buy Now Pay Later and business loans from the past five years
  • All payments on credit cards, loans, or bills, and whether you paid on time or not for the last two years
  • Anything you owed to the total of $150 or more that is/was overdue by 60 days or more will stay on your report for five years.
Your credit rating covers anything from the past five years. (Credit: Supplied)

How can you fix this?

  • Check for errors: has anything been doubled up (applications etc) or is larger than the actual amounts (loan sizes, debts, etc)?
  • Are any credit issues over 60 days incorrectly listed (did you actually pay them off before 60 days?)
  • Are any disputed debts listed?
  • Are there accounts or debts there because of identity theft?

If your report has any of these, contact the rate agency and get them removed.

And try these simple steps to improve your rating:

  • Lower your credit card limits
  • Pay for your reoccurring outgoings on time (rent, mortgage, utilities, phone and internet etc)
  • Limit how many applications for credit you make
  • Pay some or all of your credit card, on time and each month

Doing these things will improve your credit score over time, which will increase your likelihood of being approved next time you apply for a loan or credit.

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