What affects your credit score in Australia?
When you’re applying for a business loan in Australia, your credit score is something the lender will want to know as part of the business loan qualification process. That little score or rating is important – it can mean the difference between a swift approval and a difficult credit rollercoaster, so it’s important to find out the things you can do to protect your credit score and how you can increase it to make business lending easier in future.
Here we’re setting out a few of the main factors that have an impact on your credit score as well as some basic tips you can start actioning now.
Your credit score can be affected by your past debt, bankruptcies and defaulting
We’re starting with the serious stuff – though it’s likely you will already be aware of the positive or negative consequences of your financial history. Depending on the severity of the defaulted debt, this may or may not be a big roadblock to getting a business loan.
For a smaller unpaid debt that was referred to a collections agency, the debt may be recorded on your file for anything from five to ten years. Equifax, the major credit reporting bureau and administrator of credit reports, tells us that “Most negative information generally stays on credit reports for 7 years.” So, if you’ve had recent unpaid debts you may have more difficulty getting a business loan.
Bankruptcy public records will remain on your credit file for between seven and 10 years, depending on the type of bankruptcy, so if you’re currently declared bankrupt, securing credit may be quite difficult. Explore your options and get the advice you need. Remember there are financial counsellors available as a free service across Australia who are experienced in helping business owners recover from debt and bankruptcy.
Bad debt and “buy-now-pay-later” can lower your credit score
Banks and large lenders often take a dim view of what they may see as bad financial habits. In the current culture of online on-demand shopping, this could extend to your (buy-now-pay-later) shopping sprees and app food delivery payment history. These things, though completely legal and popular, could unfairly be interpreted as spendthrift behaviour.
At time of writing for example, using some of these well-known ‘buy now pay later’ organisations can cause a 75-point reduction on your score. Imagine what applying for three of them in a single day could do!
Lenders will also be wary if they see evidence of quick loans and payday loans since they indicate difficulty with basic financial management and planning. Though they provide a relatively small line of credit, these quick loans typically don’t require a hard credit check and may be considered irresponsible lending.
Running too many credit checks can impact your credit score
Your credit score is numbered between 0 and 1,200 (perfect). Every time you are requesting credit, or entering into a contract, the ‘vendor’ or lender has the right to ask to perform a credit check on you. There are two types of credit checks. The first, a ‘soft pull’ is really just an indicator. It doesn’t affect your credit score. The second type of credit check is a ‘hard pull’ and it will remain on, and possible affect, your credit score.
You as a client are always asked to agree and refer to the Privacy Act before the vendor is able to perform a hard credit pull. Every time this credit check is performed on you, your score is reduced for a period of time afterwards. For example, if you were requesting a business credit card, and you applied through six random websites, this would drop your score six times. Different types of enquiries have different effects on your credit file.
Multiple ‘footprints’ on your credit file within a short space of time gives a negative appearance. At worst it could suggest a desperation for funds, making you an unattractive client.
Our LOGIC AI (Artificial Intelligence) software runs your unique business situation against 300+ lenders to see what you may qualify for without affecting your credit score. Match with lender today.
The good news for a bad credit score
If you’re reading this with apprehension or if you’re facing the reality of a bad credit score, don’t despair – there are plenty of ways you can start to get back on track today. The best method of increasing your score is consistency with your behaviour. Paying your credit accounts, bills and loan repayments on time each period is the best strategy. It allows the Comprehensive Credit Reporting system to reward you for keeping up to date by progressively increasing your score over time.
Use the knowledge you’re building up now to prioritise paying on time and to think twice when it comes to actions like paying late, getting into bad debt arrangements or allowing too many credit checks in a short period.
At the Matias Group we have partnered with a credit repair agency to ensure the financial health of our clients can remain elite. We are here to help