A credit report can tell lenders a lot about a borrower. It’s determined by a range of factors including your previous ability to manage debt, bills and make repayments on time. Your credit report contains the following information:
Personal information (e.g., name, date of birth, address, employer etc.)
Credit rating – this is the ‘band’ your credit score sits in (e.g., low, fair, good, very good, excellent) and possibly your credit score
Information on credit products you’ve held over the last 2 years
Last 2 years of repayment history
Information relating to financial hardship (e.g.,natural disaster, job loss)
Defaults on credit products and utility bills from the last 5 years
Information on credit applications
Bankruptcies and debt agreements
Credit check requests from lenders.
There’s a lot of misinformation floating around about what does and doesn’t affect your credit score, so we’ve compiled a list of 10 things that don’t affect your credit score.
1. Checking your credit score
For those interested in refinancing or applying for a new loan, it’s important to stay informed about your credit history.
To do this, you can make use of the free credit report from the major credit reporting agencies once every 3 months. These agencies are Experian, Illion and Equifax and may provide reports with slightly different information.
Luckily, checking your credit score yourself will not impact it in any way. Checking your own credit score is referred to as a ‘soft enquiry’ and isn’t recorded in your credit file.
On the other hand, when a lender performs a credit check, this is recorded as a ‘hard enquiry’. While a hard credit enquiry won’t tank your credit rating, multiple credit checks in a short period of time can negatively impact your score.
The benefits of checking your credit score every few months include:
Having a better idea of your financial standing
Knowing whether your credit is good enough for you to be applying for home loans
It gives you the opportunity to check for any inaccuracies in the report
It gives you the opportunity to check if you may have been a victim of identity theft or fraud.
2. Your income
Whether you make a little or a lot of money, this doesn’t affect your credit score.
Someone who earns a lot of money won’t necessarily manage it better than someone who has a lower income – and vice versa.
While the amount of money you earn won’t influence your credit rating, it’s still a piece of information that lenders are likely to request in loan applications.
3. Old information
Your credit file is not a permanent record and eventually information will disappear from it – both good and bad. So, your missed payments from 10 years ago won’t still be on your credit report.
Remember that certain pieces of information can remain in your credit file for a long time. For example, a default remains on your file for 5 years, as do bankruptcies and court judgements.
However, your repayment history only stays on file for 2 years while enquiries also stay for 5. Bear in mind that these credit enquiries don’t necessarily have a negative impact on your credit score.
4. Relationship status, gender, religion and ethnicity
It should be obvious, but personal factors such as your ethnicity, gender, religion and relationship status play no role in shaping your credit score.
You can feel free to embrace who you are as an individual without worrying about jeopardising your credit score.
Your credit score is about your credit history:
How you’ve handled loans and credit cards
Your credit applications.
5. Rent, utility and phone bills (most of the time)
Many individuals are under the impression that bill repayments of utilities, phone and rent are stored on your credit file for the standard 2-year period.
However, utility and telecommunication companies are not considered licenced credit providers meaning that paying your bills on time won’t necessarily boost your credit score.
While these repayments won’t be recorded in your credit report, it’s possible that repayments over $150 that are more than 60 days overdue can be recorded as a default. So, try to avoid being seriously late on your bill repayments.
6. Credit utilisation rate
In countries like the United States, they determine the ratio of your credit card debt to your credit card limit which is referred to as your credit utilisation rate. This information would be recorded in your credit file.
But in Australia, your credit card debt balance is not listed on your credit report. Your credit card debt is not a problem unless you are failing to make your repayments on time.
Therefore, it’s important to look for Australian sources of information on finance matters, as these things often differ between countries.
7. Paying off your mortgage or personal loan early
While paying off mortgages or personal loans early can help you save on interest and potentially create healthy financial habits, doing so won’t improve your credit score.
This is because credit reporting agencies won’t even know that you’ve made payments early due to the regulations stipulating that your balance can’t be shared with them.
If you’re someone who is likely to forget to make a payment, then repaying a loan early might be beneficial in other ways. It can help you avoid potential missed payments down the line and the credit implications that could subsequently occur.
8. Personal savings, assets and investments
Similarly, to the point on income and personal details, your credit score is determined by your credit history.
Whether you have a lot of money tied up in savings and investments or barely any at all, this plays no role in shaping your credit score.
However, home loan lenders will ask to see information about your savings and any assets and investments you may have.
9. Having high interest rates on your credit products
If you have unusually high interest rates on your loans or credit cards (e.g., because you are considered a riskier borrower by the lender), this won’t hurt your credit score.
But if you miss or make late repayments, your credit score could be harmed.
10. Using credit counselling services
Using the services of a credit counsellor to help improve your credit score or work towards a better financial situation won’t impact your credit score.
If you have a damaged credit rating or your credit usage has gotten out of hand, getting expert debt advice can be life changing.
If you don’t have room in your budget for a paid credit counsellor, there are free financial counselling services that the National Debt Helpline can help you find.
Want to learn more about how your credit score can impact future loan applications? Get in contact with your local Aussie Broker today. Aussie works with a few Australian lenders, including those that provide services to borrowers with unique situations (e.g., poor credit).
