Your credit score is a number that represents your history of managing credit; the higher your score, the more creditworthy you appear to lenders.
Your credit score is based on your credit history and calculated using several factors, including how much money you have borrowed, how well you repay your debts and what credit limits you have in place.
It will also be based on past credit applications and whether you have any bankruptcies, defaults or court judgments in your name.
When applying for a mortgage, your credit score will not only influence how likely you are to be approved, but how much a lender is willing to loan you, the interest rate they offer you and the terms of your loan. So it’s an important figure to know and monitor.
Your credit score is calculated by credit reporting agencies, also known as credit bureaus; in Australia, the three main credit bureaus are Equifax, Experian and Illion.
Each one may have different information about you, calculate your score differently and have different definitions of what constitutes a ‘below average’, ‘good’ or ‘excellent’ score.
You are entitled to a free copy of your credit report every three months.
Several factors can affect your credit score. These include:
If you are looking to improve your credit score, you could consider:
If you want more information about how your credit score may affect a future home loan application, it’s a good idea to speak to a broker.
By Toby Edmunds
Toby Edmunds is managing director and finance broker at Loan Market Razor in Victoria. He has been in the finance industry for over 30 years, including working at Commonwealth Bank. He has received industry accolades including from MPA, The Adviser, Australian Broker Magazine and Australian Mortgage Awards.
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