The Australian Guide to Protecting and Improving Your Credit Score
General Advice Warning: The information provided in this article by Friendly Finance is general in nature and has been prepared without taking into account your personal objectives, financial situation, or needs. It does not constitute personal financial or credit advice. Your credit score is calculated by independent credit reporting bodies (such as Equifax, Experian, and Illion) and is subject to their specific algorithms and reporting timelines. Before acting on any information or applying for new credit products, you should consider the appropriateness of the information having regard to your own objectives and financial situation. We strongly recommend seeking independent advice from a licensed financial adviser or contacting the National Debt Helpline (1800 007 007) if you require assistance with managing debt.
Key Takeaways:
Understand CCR: Under Australia's Comprehensive Credit Reporting system, both positive behaviors (like paying on time) and negative marks (like defaults) are actively recorded.
Limit Hard Enquiries: Applying for multiple credit cards or loans triggers "hard enquiries," which act as a risk signal to lenders and temporarily lower your score.
Close Unused Accounts: Having too many open credit accounts, even if unused, can negatively impact your borrowing capacity when applying for new finance.
As you make financial decisions in your everyday life, you may not always be actively considering your credit score or how your daily habits affect it. However, the most seemingly insignificant mistakes—such as forgetting to pay a minor utility bill or skipping a credit card payment—can have massive implications on your future borrowing power.
Credit scoring models vary significantly across the globe. For example, while you might read about how the average credit score in Canada is calculated based on their specific national bureaus, Australian lenders rely heavily on our localized Comprehensive Credit Reporting (CCR) system. Understanding how the Australian system works is the first step in ensuring you aren't accidentally sabotaging your financial future.
Here are the most common ways Australians unknowingly hurt their credit scores, and what you can do to fix them.
1. Poor Repayment History and Defaults
Whether you are aiming for an excellent score in Australia or simply trying to repair past mistakes, your repayment history is the single largest factor in determining your creditworthiness.
Under Australia's Comprehensive Credit Reporting (CCR) system, making your monthly payments on time is officially recorded as a positive data point on your credit report. These positive points include timely payments for your utilities, phone plans, personal loans, credit cards, and residential mortgages.
In contrast, late or missed payments can severely damage your standing:
Late Payments: A payment that is more than 14 days late is recorded on your credit file. This late payment mark will stay on your credit report for two years.
Defaults: A default is much more serious. In Australia, a default is recorded when a payment of $150 or more has been overdue for more than 60 days. This severe black mark stays on your credit report for five years, making it incredibly difficult to secure competitive interest rates.
The Fix: If you are worried about paying your bills on time, read the due date on each statement and set a digital reminder on your mobile device to ensure it is paid prior to that date. If you are experiencing genuine financial difficulty, proactively contact your utility provider or credit card company to set up a hardship payment plan before the bill becomes a default.
2. Keeping Too Many Credit Accounts Open
There is a wide range of credit types available in Australia today, including traditional credit cards, personal loans, and modern Buy Now, Pay Later (BNPL) services. While many financially savvy people close a line of credit when they no longer need it, not everyone remembers to do so.
Not closing credit accounts that you are no longer using may not seem like a big deal, but it can drastically affect your credit score and your overall borrowing capacity. Your Australian credit report shows all credit accounts you have held for the last two years. Having too many open accounts signals to lenders that you have access to large amounts of debt, causing them to worry about your capacity to pay back any new credit they might offer you.
The Fix: Audit your wallet. If you have a credit card with a $10,000 limit that sits in a drawer unused, cancel it. Australian banks assess you on your total limit, not your current balance.
3. Failing to Update Your Address Information
Something as simple as not updating your physical or email address when you move house can have a devastating impact on your credit score.
The logic is simple: you cannot pay a bill that you do not know about. However, the reason why a bill was missed is never listed on your credit report. All the credit bureau sees is that you failed to pay an obligation.
The Fix: When you are planning to move, write a comprehensive list of all your credit and service providers. Ensure each one has been formally notified of your address change so you receive all future bills, final notices, and account notifications.
4. Submitting Too Many New Credit Applications
Many consumers make multiple credit applications simultaneously in an attempt to secure the best interest rates, increase their available credit limits, or maximize introductory rewards. While these might seem like smart shopping strategies, they can actually trigger immediate damage to your credit score.
Every time you submit a formal application, it triggers a ‘hard enquiry’ on your credit file, which temporarily lowers your credit score. Furthermore, multiple applications clustered together act as a massive risk signal. It tells prospective lenders that a borrower might be high-risk, desperate for cash, or financially overextended.
The Fix: Instead of making multiple credit applications at once, use online comparison tools to do your research first. Once you have chosen the best product, submit a single application. If you are declined, wait 3 to 6 months between each new application to avoid a significant drop in your credit score.
Final Thoughts
Most people aren’t fully aware that their daily administrative habits are hurting their credit score, but that doesn’t mean the damage isn't happening! Fortunately, by limiting your new credit applications, closing unused accounts, and being hyper-vigilant about paying your bills on time, you can keep credit score damage to an absolute minimum and protect your financial future.
