Many transactions can affect your credit score, not just applying for a home loan or a credit card. When a bank or financial institution passes this information to the Australian credit reporting agencies, they’ll update your credit score and add the incident to your credit file.
Depending on the type of incident and the policy of the credit rating agency, it may stay on your credit file for several years. Checking your credit report periodically will help you to know about the impact of any new updates or information. You can request a copy of your credit report for free once a year, without any impact on your credit score.
When does your credit score change?
A lot of Aussies may find it surprising that their financial activities are tracked, and not just by their banks or financial institutions. However, with technology speeding up financial transactions, lenders need quick access to reliable information about you and your financial history. Your credit score is one way of illustrating how responsible you are with your money and any debts you take on.
When you set up a new utility like electricity or gas, get a new phone connection, or refinance your home loan, a credit check will be run. This is to gauge if there’s any risk of you not making your expected payments.
Every credit enquiry is noted on your credit file, which impacts your credit score. This is not necessarily a bad thing as long as you keep up all payments and make them on time there won’t be any negative impact.
The frequency of your credit transactions will eventually impact your credit score. Things like applying too often for credit cards, or applying with multiple lenders for a home loan, can cause your credit score to decline.
Not repaying your utility bills on time, or borrowing more than you can reasonably repay can also have a negative impact. If you’re the owner or director of a business ensure your business and personal transactions are kept separate. This is to make sure any issues you may have in your business finances don’t negatively impact your credit score.
Each credit reporting agency generally decides the impact of any specific incident based on the circumstances. For instance, requesting a payment deferral might usually harm your credit score. However, given the ongoing Covid-19 pandemic, lenders may not report payment deferrals as negative incidents, especially if you’ve been prompt with your payments before the pandemic.
How long does credit score take to update after negative incidents?
You should consider checking your credit report yearly, as some incidents can have an impact for a long time whilst others are removed quickly. How long a credit score update takes depends on the reporting agency.
As an example, Equifax, which tracks the credit score for individuals as well as businesses, may maintain your repayment history information (RHI) for up to two years. However, credit enquiries and payment defaults can remain on your file for as long as five years. For some other incidents like an insolvency agreement or a bankruptcy proceeding, the amount of time these are reflected on your credit report can vary.
One scenario could be that you took out a loan which you then couldn’t repay. You may have stopped responding to the lender’s requests for payment and may have even moved without telling anyone where you’ve moved to.
Unfortunately, even though you made it so that the lender can’t contact you anymore, they can report a serious credit infringement against your credit file. The reporting agency may continue to include this kind of severe incident in your credit report for up to seven years.
Even if you don’t have any debts, you should make sure to keep all your contact information up to date with the financial institutions you interact with. This can help you avoid your credit score being affected by someone’s else repayment issues if they’ve moved into your previous home.
Does your credit score get reset by Australian credit reporting agencies?
Your credit score may not get reset technically, but you can work to improve it. Sometimes it may simply be that you need to correct the details in your credit report.
Credit reporting agencies don’t usually remove negative incidents from your credit file. They do, however, expire from your credit report over time. If you’re looking to improve your credit score, be wary of possible fraudulent offers to help you, as they can end up costing you good money. Remember that if any of the information on your credit report isn’t accurate, the reporting agency will probably not charge you for fixing these errors.
Some of these erroneous entries can include:
- Your personal details, including identification and contact information.
- Credit transactions reported more than once.
- Incorrectly reported debt or repayment amounts.
- Fraudulent transactions that you can prove aren’t yours.
On the other hand, improving your credit score requires patience and effort on your part. Here are some of the things you can do that can help improve your credit score:
- Ensure you pay off your bills, debts, and loans on time or early.
- If you have several debts, try to consolidate them or bring down the outstanding amount.
- Wait to apply for new loans or credit cards until you lower your current debts.
- Reduce the number of credit cards you hold.