Everyone has a credit score. It’s that magic number that determines a lot about your borrowing capacity. What is more, a credit score is very important when it comes to building a strong property portfolio. The question is, how much do you know about yours? Throughout this article, we explore five questions that will ultimately give you a better understanding of credit scores and what you can do to improve them. 

A credit score is essentially a rating that determines your perceived ability to repay debt based on your past credit performance. Oddly enough, few people actually know what their number is. The best way to find out your credit score is to go straight to the source and speak to the people who determine these ratings and what it means for you.

1. Who decides your credit score?

Credit scores are determined by agencies who are chosen with the requisite authority by the Australian government. Ultimately, credit scores (and the agencies that regulate them) aim to protect credit providers and reduce the instance of bankruptcies in Australia. There are many credit reporting agencies in Australia, one of the most well-known in the industry being Equifax (Previously Veda).

2. How do credit agencies determine your score?

There are three basic components that agencies apply to determine a credit score. We will use Equifax as an example:

• Veda calculates a VedaScore (aka credit score) by summarising credit report information.
• Based on this data they rank your credit on a scale of 1 to 1200 against other Australians – the result is your credit score.
• Lenders use this number to assess your credit application – i.e. home loan, personal loan.

A basic credit rating can be ordered from the Equifax website for free here.

3. What information do agencies collect?

Credit reporting agencies collect the following information to help determine your credit score:

• Personal details (name, date of birth, driving licence number and address, etc.).
• Information pertaining to your credit history.
• Past loan applications details (approved or not, overdue payments, credit infringements).
• Loan repayment due dates (i.e. whether due dates were met)
• Debt agreements (including court judgements and orders, insolvency agreements).
• How long do agencies store this information for?
• Credit reporting agencies store the previously mentioned information for up to seven years – so you can see how easily the past can really affect your current borrowing capacity.

4. How can I improve my credit score?

• To strengthen your credit score, and financial history, as well as establish yourself as a ‘good customer’ for future lenders, there are three key financial practices you need to put in place:
• Pay off all bills on time 
• Shut down unnecessary accounts
• Save consistently

At the end of the day, the best way to improve your credit score is through diligent credit management. In other words, live within your means and pay your bills on time.

Once improved, your credit score can be maintained by always having a comprehensive understanding of your personal credit file (including knowing your actual credit score) and sound ongoing credit management.

Here at HSBP we work with many reputable financial firms who can help with managing your finances for greater long-term wealth – especially when it comes to property investment.

For more information or to arrange an appointment with one of our property specialists, contact our team on 0419 782 133.