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5 things you need to know about your credit score

Financial adviser Glen James gets busy mythbusting.

Jack Derwin

Digital Journalist, Your Money

It’s the number that follows you around and affects more of your financial wellbeing than almost anything else: your credit score.

From getting a credit card, a mortgage or any other kind of loan, the rating is a major indicator as to whether your bank or lender will approve or reject your application.

Despite that, most Australians don’t only not know theirs, they also don’t even understand how it works.

Financial adviser and My Millennial Money founder Glen James joined Your Money Live to bust the biggest misconceptions Aussies have about their credit score.

1. There is no one national ‘credit report system’

Unlike the United States, Australia doesn’t have any form of national credit reporting agency.

“There’s not one national score that sits across every financial institution across every individual across every bank. There are three main providers in Australia, there are many [actually] but there are three main ones,” James explained.

“They make up their own score internally.”

That is then used in conjunction with the lender’s own read on how likely you are to make your repayments.

“What happens is the banks will look and have their own internal risk profile mechanisms [as well].”

2. Your report contains both positive and negative info

It’s true that Australia used to work on a negative-only system, but that’s not true since the comprehensive credit reporting (CCR) system came in last year.

“It used to only be defaults but now it collects good information too,” James said.

Now bad behaviour, like missed payments and outstanding debts, is balanced out by good behaviour, like paying on-time, thus rewarding trustworthiness.

3. You don’t need a loan to have a credit profile

The system we use in Australia tracks all kinds of consumer behaviour so you don’t require a mortgage for an agency to allocate you a score.

“It could be as simple as getting a phone contract, technically that’s credit because they’re lending you money a month at a time,” James said.

4. You do need to check it frequently

The truth is errors do happen and while they can be fixed, it does take time- time that you might not have if you’re applying for a home loan for example.

“Treat your credit score as a personal asset and check it at least once a year, because if someone puts a ding on your credit and you’re not aware of it… there could be something that could take months and months to fix,” James explained.

“You can do something about it if it’s a fraudulent or not an accurate report.”

5. You can’t clean it though

However, if you are responsible for some bad credit behaviour, that’s not something you can wipe away.

“You can only remove information if it wasn’t you,” James said.

But how long does information remain on your score then?

“Five years for defaults and approximately two years for monthly data of reporting negative and positive,” he said.

Watch the full interview above for more.

Read more: How to get your home loan approved in just 90 days
More: Why your credit score matters and how to fix it
More: What to do if you fall behind on the mortgage