Educate yourself on credit scores

AUSTRALIANS are misinformed about what affects their credit score, with a significant number mistakenly focused on household bills and their salary, research has found.

The Finder.com.au survey of 2033 people revealed 66 per cent of Australians believe not paying household bills on time meant a blemish on their credit file, while more than a third worried about late tax payments. Neither of these is the case, meaning people may be focusing on the wrong aspects of their finances, Finder.com.au spokeswoman Bessie Hassan said.

“Busting credit score myths … is critical, especially if you’re considering taking out a loan because lenders use your credit score to determine your borrowing capacity,’’ she said.

Another 27 per cent mistakenly believed a missed credit card payment a decade ago would be taken into account and 23 per cent worried about their salary, which affected serviceability calculations but not a credit file.

“Lenders look at indicators such as loan repayments and credit card repayments,” Ms Hassan said, explaining that late credit card payments stayed on someone’s record for two years; defaults of less than $150 for five years; and infringements of more than $150 for seven years.

Bank balances (16 per cent), credit score checks (12 per cent) and postcodes (8 per cent) were other notable things that people wrongly believed affected scores.

“It is near impossible to make changes if you do not know what you need to change,” Ms Hassan said. “Depending on your credit score, knowing may either give you the peace of mind you need, or the wake-up call you need.”

Being educated can be the difference between getting a home loan and being rejected, according to J.J. Taylor, director of property firm @realty.

“Banks are becoming a lot more selective,” he said. “Credit card spending habits are one of the biggest things. If you’re preparing to apply for a home loan, review your own spending habits and make sure you’re not spending outside your means.”