Having a positive credit rating could be essential to securing finance now, or for borrowing money for big ticket items, such as property or a car, in the future. As more people begin to use credit as a means of finance, it’s important to understand what a credit rating is and what a good or bad credit rating could mean1.
What is a credit rating and how do you get one?
A credit rating is an automatic calculation of the risk of a loan application, based on a person’s credit history, employment, stability of income and, since March 2014, their repayment history1. This information is traditionally stored on a credit file1.
The credit file is a recording of your credit history and is triggered once you have applied for any number of credit options, including: credit cards, personal and business loans, a mortgage, mobile or Internet plans or even utility accounts2.
What determines a credit rating?
There are several factors that could combine to form a credit rating. Among the most common include whether a person has previously missed payments on their debts, a person’s current employment type, and how many enquiries have been made on your credit file in the previous six months.
What does bad credit mean and how long does it last?
If you are deemed to have “bad credit”, a bank or lender could see you as a higher risk and not lend you money, they may also limit the amount you can borrow or charge you higher interest. A bad credit rating could potentially last for years. For example, details about credit applications are kept for 5 years, while repayment history information lasts 2 years3.
Give yourself credit
A good credit score could go a long way in helping you secure a loan, so it’s important to know what your credit rating is. You’re entitled to see your credit file for free, and several agencies within Australia have access to your credit file and are obliged to provide it to you upon request.
Disclaimer: The information is in summary form and does not purport to be complete. It is intended as a general guide only and is not a substitute for professional advice. The information does not take into account your personal needs and financial circumstances and you should consider whether it is appropriate for you.
Sources: 1. “Credit Rating Mortgage”, homeloanexperts.com.au, Accessed 9 September 2014
2. “Why credit ratings matter”, yourmortgage.com.au, Accessed 9 September 2014
3. “Tools and tips: Credit report”, moneyhelp.org.au, Accessed 9 September 2014
