How to understand & check your credit score

Chances are you’ve recently paid for something on credit – it’s a big part of our everyday lives. Credit helps us pay our rent, buy a home or a car, take a holiday and cover our living expenses.

And when it comes to giving you credit, companies need to make sure you’re in good financial shape and you won’t struggle to repay them.

What’s a credit score?

Your credit score (sometimes also called your credit rating) is based on your borrowing and repayment history – and includes how often you’ve shopped around for credit too.

Lenders will use this rating, alongside their own risk criteria, to decide whether to lend to you, how much and at what rate of interest.

How is your credit score calculated?

Your credit score is calculated by credit reporting agencies such as Veda, Australia’s largest.

Although these agencies score in different ways (Veda scores between zero and 1,200), in general the higher the number, the more likely you are to have your request for credit accepted.

To calculate your score, credit reporting agencies look at:

• Your debt (past and present), including any problems you’ve experienced repaying that debt
• Loans (and loan enquiries) you’ve taken out for household, personal or family reasons; or to buy, refinance or renovate a property; or as a guarantor for someone
• Your credit cards and store cards
• Your current credit limit
• Accounts you’ve opened and/or closed

They will also check if you have a court writ or default judgment against you and look out for any history of bankruptcy.

How do you check your credit score?

You can request your credit score report for free on sites like My Credit File and Check Your Credit.

They’ll ask you to confirm information including your:

• Name
• Date of birth
• Contact address
• Driver’s licence number.

You should receive your credit score report within 10 days.

Can you repair your credit score?

Your credit score isn’t fixed – it reflects your credit situation only at the time a check takes place.

One slip-up can reduce your score. In order to avoid this, it’s important to always pay your bills and make loan repayments on time and not overextend yourself financially.

If you see something in your credit score report that looks questionable, get in touch with the credit provider to get it checked or corrected. Outdated information can result in you being refused a loan or line of credit.

And if you think you have been a victim of identity theft, contact the police and credit providers’ fraud department so they can investigate this for you.