What a credit score is, and what it is built from

SC.1Two kinds of score, two kinds of maker

The OAIC defines a credit score as “a number that indicates your creditworthiness (including your eligibility to be given credit) that a credit reporting body or credit provider calculates.” The difference between the two matters, because they start from different information.

So a lender may work out its own number, using information it holds that isn’t on your report.

SC.2What goes into it

A credit reporting body works out its score from what is in your credit report. Moneysmart gives three examples of what counts:

1. how much you have borrowed
2. how many times you have applied for credit
3. whether your payments arrive on time

Those draw on parts of the file the law allows: the credit you hold and its limits, your repayment history, the enquiries made when you applied for credit, defaults, and public records such as court judgments about credit. The guide to repayment history shows how each month of payments is written down.

What can’t go into it

• Hardship arrangements. A credit reporting body can’t use financial hardship information to calculate your score. Moneysmart puts it plainly: a financial hardship arrangement does not affect your credit score. More in hardship and your report.
• Your income. A credit provider may ask about your income when you apply, but it can’t give that to a credit reporting body for your report.
• Anything outside the list. A credit reporting body isn’t permitted to handle information about your consumer credit beyond the types the law lists.

SC.3The scale, and why this dial has no numbers

Your report also includes a credit rating: the band your score sits in. Moneysmart’s example bands run from low through fair, good and very good to excellent. Not every credit reporting body includes the score itself on the report, but the band is there.

A higher score means a lender will consider you less risky, and a lower score makes it harder to get a loan or credit.

Different bodies, different files

Credit reporting bodies may hold different information about you, which is why the OAIC suggests you may need a copy of your report from each one. Add the different scales, and the same number can mean different things at different bodies. The guide to getting your report for free says who to ask.

SC.4Seeing your own score

Some credit reporting bodies may give you your score for free, so Moneysmart suggests checking with them directly. You can also get a score for free from an online credit score provider, which uses data from one or more credit reporting bodies to work it out.

Moneysmart adds two cautions about those providers:

• When you sign up you usually agree to a privacy policy that lets them use your personal information for marketing. You can opt out after you sign up.
• Stay away from a provider that wants payment or your credit card details.

SC.5What moves it over time

Moneysmart describes improving a credit rating as a steady process, and lists the habits that help:

• paying bills on time
• keeping a credit card balance low, so you are not using most of the limit
• checking your report each year and fixing any errors
• limiting new credit applications, because too many in a short time can lower your score
• reminders or direct debits to stay on track with payments

Correct information can’t be removed early, even when it’s negative, which is the subject of the guide to credit repair businesses.