Credit rating: what affects it?

You need to understand how your credit score is calculated.

Man's hand with notebook saying credit score

Most of us know we have a credit score – even if we don’t know what it is. And if you did know your magic number, would you know what it means?

Your credit score is what lenders use to assess your risk rating, or the likelihood of you defaulting on a credit agreement. Several factors are used to determine your credit score, which include:

  1. the number of times you have applied for credit – made by lenders/credit providers
  2. the number of credit enquiries you have made in the last 12 months
  3. your credit pattern – how many lenders from which you have applied for credit
  4. your default history – e.g. late payments, missed payments, outstanding payments (this can include utility companies, not just banks and credit card providers)
  5. payment history – do you pay on time, only pay the minimum balance, etc.

Each category is given a different weighting, or points, and the total is your credit score. This is then used by potential lenders to assess your risk of defaulting. It’s worth noting that this is only one such tool that lenders use; your details will also be assessed against their own internal criteria, which explains why one lender may say no but another approves your application.

While different agencies use differing criteria to rank your score, having even a basic understanding will help you manage your credit profile.

Your credit score is expressed as a number between 0 and 1200 – the higher the score, the more credit-worthy you’re considered. If you have a score of around 200, you are determined to be a high risk, with a strong possibility of defaulting on an agreement within 12 months. The national average score, determined by credit reporting agency Veda, is 749. This is quite good, so achieving any higher than that makes the world of credit your oyster, with access to better borrowing interest rates.

So what can you do to keep you credit score above the nation’s average? These few simple steps may help:

  1. Pay your bills on time, and as soon as you experience any difficulties, contact your credit provider. It’s easier to deal with the issue then and there rather than trying to clear a bad debt years down the track.
  2. Make sure all bills are being received. Get them sent to a fully operational email address, and if you move, make sure you advise your provider of your new address.
  3. Don’t apply for credit on a whim. While this may seem obviously foolish, it can be tempting to consider an interest-free payment plan, or a better interest rate to transfer the balance of credit cards. Too many applications will be detrimental to your credit rating.

Ensure your file is correct and up to date. If a mistake has been made, follow it up immediately and don’t assume it will just disappear.

If you do find that your credit record has a default recorded, whether wrongly or the debt has since been paid, remember you can ‘fix’ this yourself by contacting the credit provider directly. DO NOT go to one of the growing number of ‘debt repair’ agencies that will only charge you for doing something you can do yourself. Or they may even use questionable or illegal means to ‘help’ you out of your predicament.

Find out how you can get a copy of your credit file at

More articles:

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    To make a comment, please register or login
    26th Jan 2016
    Don't use credit, no debts, owe nothing. Don't need any so called 'credit rating'

    Christians are to OWE nothing, no debts for them, nor do they go guarantor for those with a debt....those who borrow are slave to the lender. OWE NOTHING
    26th Jan 2016
    Unless you live in a cave and catch or grow your own food, you will always owe to someone. You must be paying for something like the internet you sent your message with including the computer and the electricity to run it and you would have a phone. SO, you will always owe something to someone and religion has nothing to do with it.
    26th Jan 2016
    I watched your YouTube article which further makes be know you owe something because you are well dressed and in a building which would not be rent free. So it is still the fact that if you don't pay for these items you would not be making the statement that you make. Even a church need money to pay the bills so when the tray goes around you must contribute to the on goings for the church. All I'm saying is you can not live in the modern times and have everything for free, it would be nice : )
    26th Jan 2016
    The foolish understand not that the wise PAY AHEAD FOR THINGS, thus the bill comes and says 'NO payment required' and has credit balance of much money. Rent to by the wise is 'paid much ahead' also. Thus when falling asleep there are no debts left.
    26th Jan 2016
    Pay day lenders should be avoided at all costs. These companies are leeches drawing people dry.
    Polly Esther
    26th Jan 2016
    yes you are correct and the TV stations are parasites for airing their ads.
    26th Jan 2016
    They need to be made illegal as it is highway robbery.
    26th Jan 2016
    I have never ever used credit, so my score would be zero. Tough for me if ever I need to apply for credit. If you can't afford it - you can't have it.
    And not even a Christian to boot.
    26th Jan 2016
    Julia: nothing to do with affording it. Everything to do with budgeting and having the money there to pay off at the end of the month.
    The beauty with credit cards is the convenience and the points you build up which give you cash back. Like a discount every time you spend.
    26th Jan 2016
    ranga, it is not all about credit in the sense you write. Unless you always pre-pay for things in cash only, we all have credit. Consider: rent/mortgage, electricity, gas, water, rates, telephone/internet, insurance, water...... these things are all on 'credit' in that we use them first and pay later - weekly, monthly annually etc. If you miss payments or don't pay the full amount it can affect your credit rating. Even buying something say by mail or online for a try-before-you-buy is credit and failure to pay will affect your credit rating. It would be a very rare person these days who could successfully 'live off the grid' and not have a credit rating.
    26th Jan 2016
    Lippy, you are right. If you add it all together and you also own your own home you have debt. A home needs rates, electricity, an ISP, Insurance (home and contents) and then there is the car, petrol, maintenance and servicing. Health insurance, the list goes on. As long as you pay your bills (debts) on time your credit rating is oK. I did the test for that a while ago and am in the high 900s. Not that I need to borrow but it is good to know I could if needed.
    26th Jan 2016
    We have been the world's best customers for decades. Always pay by the due date and almost never miss a payment...and when we do pay immediately we realise.
    We have never had a problem getting a loan or credit of any sort until the day a bit over a year ago when we applied for the 28 Degrees card from GE Finance. I even end up speaking to the CEO, but all to no avail. Apparently the laws have changed and our low retirement income cut us out despite owning everything we have and having investments and more thana few funds in the bank. You might want to follow up on this one Debbie!!!!
    No worries though. We ended up with a Citibank debit card which suited our needs and GEFinance lost our business. Their loss!
    B j
    27th Jan 2016
    Those that are advertising quick loans need to be banned there interest rates are nearly 40per cent plus very hefty fees,they rely on the people that are most likely going through a rough patch&don't understand what they are getting into.
    27th Jan 2016
    The foolish use credit....enough said.

    Tags: credit, debt, money