Your credit reputation is important and constantly changing. Find out what can make your score increase or decrease.
Your credit score is an important number, but it's not fixed. It's calculated using the information in your credit file and lets lenders know your level of risk as a borrower. This makes it a useful number to know. However, you might do your due diligence and check your score but then get an entirely different score a month later.
What goes into your credit score and what can make it can change? You will have a better understanding by the end of this guide.
How is my credit score calculated?
Your credit score is calculated using a range of information from your credit file:
- Personal information. Your age, how long you have been employed and the length of time you have been at your current address can affect your credit score.
- Credit information. The type of lender you apply for credit with can have an effect on your credit score, as can how much credit you apply for along with the type of credit. All applications you make will be listed, whether they're approved or not.
- Credit enquiries. The number of credit enquiries you've made can affect your credit score, especially if these applications are numerous and in a short space of time.
- Age of your credit file. If your credit file has been recently created you may be seen as more of a risk than someone with a longer-standing credit file. However, this depends on the type of listings on your file.
- Negative listings. Any defaults, outstanding debts, court writs or judgements you have listed on your file would negatively impact your credit score.
- Directorship and proprietorship information. If you are a director or a proprietor, the commercial section of your credit file can have an impact on your credit score.
How often is my credit score updated?
Your credit score is updated monthly with repayment information from credit providers, but your credit file is also updated whenever you apply for credit, open or close an account, change your credit limit or go guarantor on a loan. Credit providers also regularly notify credit reporting bodies such as Experian with details of serious credit infringements, defaults, court judgements and bankruptcy information.
It's important to note that if a credit provider requests your credit file or credit score (or both) from a credit reporting bureau it will be calculated at the time of the request, so if you've ordered your credit score recently it may not be the same score that is seen by the credit provider. It may have moved up or down depending on your borrower behaviour during that time.
Why did my credit score change?
Due to the amount of information that is used to calculate your credit score, it's easy to see how your score can fluctuate. Still, if you don't believe much has altered in your financial habits and your credit score still has changed, it can be confusing. Here are a few common reasons why credit scores change:
- You applied for a new loan or credit card. Any new applications you make for credit will directly affect your credit score. Keep in mind that you don't need to be approved for the application for it to be listed on your credit file and therefore affect your credit.
- A listing on your credit file expired. Information is only held on your credit file for a certain length of time, so when a listing is removed from your credit file this will positively impact your credit score.
- You changed your credit limit. Increasing limits on your credit cards or applying for a personal loan top-up (which usually constitutes a new personal loan application) will usually negatively impact your credit score. Similarly, decreasing your credit limit can positively impact your credit score. In both cases, your new credit limit will also be listed on your credit file.
- A credit provider reported new information to a credit bureau. Credit providers don't always immediately report information to credit reporting bureaus, so you may find your credit score change at a seemingly random time. This newly reported information, which can include default information or even credit enquiries, can be the cause.
- New comprehensive data was added to your report. Starting from 1 July 2018, the Big Four banks have been mandated to report comprehensive data to credit bureaus. Half of this data will be added in the 90 days following this date, with 100% of the data to be added by September 2019. This will affect your credit score. Other banks can add it in their own time and the Big Four banks – CommBank, ANZ, Westpac and NAB – can choose which data they add at which time. Find out more here.
- You closed a loan or credit card. Your credit score may improve if you close a loan or credit card. Only credit limits are listed on your credit file, not the current debts on your accounts,
- You made a repayment on a credit account late. Your monthly repayment information is now listed on your credit file and can directly affect your credit score. If you don't make a repayment on time it will cause your credit score to drop, but if you have a low credit score, making monthly repayments on time can have a positive impact on your credit score.