How are Credit Ratings Calculated?

Do you know what your credit rating is? Were you even aware that you have a credit rating?

If you are planning to apply for a credit card or loan, it’s worth understanding what your credit rating is, and how it is calculated. This will help you to make more informed financial decisions and avoid lenders rejecting your credit applications.

What is a credit rating?

Your credit rating, also known as a credit score, is a number based on an analysis of your credit file. It changes over time, and is used by lenders and services to determine whether you are likely to be able to pay off the debt you are loaned.

Based on your credit rating, a lender may choose to approve or decline your credit application for things such as credit cards, loans or utilities such as a mobile phone plan. It may also influence the interest rate that is offered to you.

A higher score means you have a good credit rating and a lower score means you have a bad credit rating.

How are credit ratings calculated - Calculator on iPhone

My credit rating

Your credit rating is calculated by looking at your personal information and credit history. This information includes:

  • Your personal details, including your age, length of employment and where you live
  • The type of credit providers you have used, such as banks or utility providers
  • The amount of credit you have borrowed and how much of that credit is available
  • The number of credit applications you have made and in what timeframe
  • Any unpaid or overdue loans or credit
  • Any Debt Agreements or personal insolvency agreements (bankruptcy)
  • Age of your credit report

Your credit rating is calculated by one or more of the four credit reporting agencies in Australia. These are Dun and Bradstreet, Equifax, Experian and the Tasmanian Collection Service. Each time you make a credit application, the lender or supplier will notify one (or more) of these agencies with your personal information and the amount of credit you have applied for.

Using the above considerations, the credit reporting agency will calculate your current credit rating and place it in one of five categories: excellent, very good, good, average or below average. The position of your credit score on this scale helps lenders determine how risky it is for them to lend to you.

If your credit rating is excellent, you are highly unlikely to have any adverse events harming your credit score in the next 12 months.

Conversely, if your credit rating falls into the below average category, you are more likely to have an adverse event being listed on your credit report in the next year. The lender uses this information to decide if they will lend you money.

How to check your credit rating

You can obtain your credit rating from a number of online providers. Remember, your credit rating may vary between credit reporting agencies due to their different calculation methods, their rating range, and that they may not have been notified of each of your credit applications over time.

The following websites offer a free credit rating:

You will need to provide identification information to obtain your credit rating, but you can do this quickly and easily and you should be able to receive an immediate indication of your credit rating, These reporting agencies also allow you to order a free copy of your credit report once a year. This is a longer process and the report is posted to you.

Checking your credit rating and credit report regularly won’t affect your credit score, and is a good way to protect against identity fraud, too.

Now that you know what factors go into calculating a credit rating, and how to check yours, read about how to fix your credit rating.


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