Markula says it’s important to know that not all lenders rely on the insight provided by credit reporting bodies. “Lenders may have their own assessment tools and internal scores, which could combine the information they get from a credit report, along with other information.”

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She adds that a lender won’t automatically provide you credit just because a credit reporting body provides an excellent credit score. “Same goes if you have a poor credit score; this does not certainly mean you won’t be able to get credit. However, in general, the higher the credit score, the better,” she says.

How are credit scores calculated?

Credit scores are calculated by the credit reporting bodies themselves or the credit provider (e.g. a bank) you have applied to. This is done using a formula that evaluates a range of factors, including how well you pay your bills, how much debt you carry and how that stacks up against other borrowers.

Not paying bills on time – or at all – is most likely to impact your credit score; for example, if you default on your account or if you skip monthly account payments.

When it comes to making credit enquiries, there are a few misconceptions. “It’s often thought that an enquiry will drop your score. That’s not right. The impact of an enquiry can depend on a whole range of factors; it could increase or decrease your score. Or have very little effect at all,” Markula says.

Requesting financial assistance is viewed more favourably by lenders than missing payments.

“But it is fair to say that many enquiries in a short period of time may drop the score.” This could include applying for multiple credit cards in a few months.

Having several unsecured short-term loans and buy-now-pay-later services may also have a poor impact.

Credit reports also list your employment and residential history. Changing jobs or homes frequently could negatively impact your credit score, as these things might indicate financial stress.

“It may be that having a poor credit score affects your ability to access credit. However, it is important to remember the score impact may depend on information available to a lender,” she says. “You may have a poor Equifax score, but apply for credit with a lender that you already have a relationship with, and they will likely use the information they already have about you, to score you differently.”

How can you improve your credit score?

Markula says ARCA tries to remind people to focus on the things they can change and control, as that’s the information that goes into your credit report, rather than focusing on the actual score.

The magic ingredient to a good credit score? Consistency. Making regular, on-time payments on credit and loan accounts is one of the most impactful factors. Getting on it is important, as improving credit scores can take time.

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“The sooner you establish a reliable repayment history, the better. So, if you plan to apply for a mortgage in the next few years or take out a major loan, you should manage your credit health now by ensuring there is no negative information, such as a default listed against you for not making your debt obligations and by ensuring that you pay your bills on time.”

From natural disasters to job loss, there are a number of reasons someone might have trouble paying bills. In these cases, Markula says it’s important to reach out to lenders early. Requesting financial assistance is viewed more favourably by lenders than missing payments. It does appear on your credit report but is deleted after 12 months. It does not impact your credit rating or score.

How can people get their own credit score and report?

One-third of Australians have never checked their credit report, according to YouGov research commissioned by ARCA in 2024.

You can check your credit score online and for free by heading to Equifax, Experian or Illion. You’ll need to set up an account, provide identification and fill out an application. Most credit reports are delivered within 10 days.

If you do order a credit report, it’s best to read it through and ensure everything is correct. There might be inaccurate information that potentially impacts your credit score; if that’s the case, you should approach the credit reporting body to rectify.

You can get a free credit report every three months. It’s good financial hygiene to order a credit report annually.

One more tip to finish: if you have been rejected for a loan or credit, it’s worth asking the lender why, to further educate yourself and help safeguard your credit rating in future.

• Advice given in this article is general in nature and not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.