6 facts about credit scores that most Australians don’t know

Your credit score is a key piece of information that helps determine whether banks will lend you money, if you'll get approved for that home loan, or even be able to get a mobile phone plan! We've put together 6 facts you should definitely know about credit scores, plus 5 myths that have been busted.

Facts about your credit score that you should know

More than two thirds think that credit card debt can affect your credit score.

While credit card debt isn't a great thing to have, it can't negatively affect your credit score if you make your repayments on time. Your credit card limit is listed on your credit file, but not your balance. In the US, your credit card utilisation ratio, or the amount of credit card debt in relation to your credit card limit, is one of the five factors that affects how your credit score is calculated, which is why some Australians might think it would be the same here. As your balance isn't noted, only your credit card limit – among other aspects – can affect your credit score.

Australians are pretty cluey about what an average credit score is.

When asked how they would rate an Equifax score of 500, more than two thirds of respondents (67.6%) answered correctly that this score was average. More females (71.1%) than males (64.3%) answered correctly and baby boomers (70.6%) beat out both gen X (67.5%) and gen Y (64.8%).

Gen Y is the most concerned about their credit score affecting their ability to access credit.

While 1 in 4 Australians (33%) fear that their credit score could stop them from being approved for a loan or a credit card, this number differed greatly by generation. Gen Y is the most worried, with 40% expressing concern that their credit score might inhibit their access to credit. This number dropped below the national average to 31% for gen X and significantly lower to 11% for baby boomers.

5 myths about your credit score

• Myth 1: You don't need to make a full repayment to have it listed as an "on-time" repayment

Not all credit accounts are repaid in the same way. Some require multiple repayments a month (such as some short-term loans), some only require you to pay a minimum repayment (such as credit cards) and some require you to pay a specific amount to keep the account in good standing (such as personal loans).

On your credit file, your repayment history notes how many months your repayments are overdue. If you aren't overdue a "0" will be listed, if you are one month overdue a "1" will be listed, and so on. If you do not make the minimum payment, only make a partial payment or do not make every one of your required payments for that month, it will be considered an overdue payment. While one overdue payment will not tip you over into bad credit, too many of these will damage your credit score and will be a red flag to lenders.

• Myth 2: Paying your electricity bill on time will improve your credit score

Utility providers are not permitted to include information about whether your repayments are on time. This includes electricity, water and gas providers, telecommunications companies such as for your phone or Internet, or public transport or toll providers.

• Myth 3: Paying your electricity bill late will not affect your credit score

While utility providers cannot report on ongoing repayments, they can list a default if you fail to pay at all. If you have a debt that is over $150 and it is over 60 days overdue it can be listed as a default on your credit file. The utility provider will need to send you two separate notices to your last known address to advise you of the default before listing it on your file.

• Myth 4: A credit provider can list any defaulted payment on your credit file

A credit provider is unable to give information to a credit reporting body about an overdue payment that it can no longer demand you pay. This is because the credit provider is restricted by the statute of limitations from enforcing the debt.

• Myth 5: Shopping around for credit doesn't affect my credit score

Every application you make for credit is listed on your credit file and affects your credit reputation. The more applications you make in a short space of time, the more of a risk you look like to potential lenders. It's important to space out your applications for credit and only apply for credit if you are certain you want to take on the account.