A negative credit rating can affect your ability to take out a loan, apply for a credit card, or open a bank account. Knowing the factors that affect your credit rating is crucial to prevent your score from becoming too low. There are even ways to improve a low score and increase your chances of obtaining credit in the future. First, you’ll want to check your credit rating. A guide on how to do so for free can be found here.

How is your Credit Rating Calculated?

In Australia, our credit reporting system factors in not only negative credit information, but also positive ones. This greatly impacts on how credit scores work and what score you’ll receive on your file, as positive financial actions can help bring a low credit score back up to average. The average credit score in Australia is 749, but scores between 622 and 1200 are considered “good”.

Negative and Positive Credit Information

Negative credit information contains all of the factors that can negatively affect your credit score, including:

• Bankruptcies/insolvencies
• Overdue accounts
• Credit applications and enquiries
• Court judgements and writs of summons

Positive credit information positively sheds light on your financial circumstances, and can include things such as:

• Account opening and closing dates
• Credit limit and usage and the account balance
• Repayment history

How to Fix Your Credit Score

Now that you know how your credit score is calculated and what information it contains, here are a few tips on how to maintain a good score:

• Do not apply for credit several times rapidly. Each time you apply for credit, it’ll be recorded in your credit report, which is noted as an enquiry. A credit can be a loan, mortgage or utilities application. If you’ve made a lot of enquiries in a short amount of time, it can have a negative effect on your credit score.
• Always pay your bills on time. An overdue debt that’s at least $150 will be listed on your credit report when it’s 60 days or more overdue. Overdue accounts for up to five years. If you can’t pay on time, ensure that you clear debts before the 60-day marker.
• Get a credit card. If you have and use a credit card, and pay it off without accruing any debt, it’ll build your credit score and show that you’re capable of handling and managing debt.
• Keep unused accounts open. Keeping a bank or credit card account over a long period of time without any negative reports has a positive impact on your credit rating.