Your Money & Your Life
  • Home
  • Your Life
  • Your Money
  • Your Business
  • Watch
  • Buy The Book
Your Money & Your Life Ever wondered how your credit score is calculated? This burger explains all
  • Your Money
    • Latest
        • It’s definitely time to cancel services you don’t use

          It’s definitely time to cancel services you don’t use

          April 7, 2022
        • Why getting (proper) financial advice when you’re young is a good idea

          Why getting (proper) financial advice when you’re young is a good idea

          April 5, 2022
        • Take on the Small Switch Challenge to save big bucks

          Take on the Small Switch Challenge to save big bucks

          April 4, 2022
  • Your Life
    • Latest
        • Finding the best kid’s savings accounts is certainly not child’s play

          Finding the best kid’s savings accounts is certainly not child’s play

          May 2, 2022
        • Teens and money: Help your teen unlock the power of compounding

          Teens and money: Help your teen unlock the power of compounding

          April 25, 2022
        • It’s time to take control and set some debt limits

          It’s time to take control and set some debt limits

          April 22, 2022
  • Your Business
    • Latest
        • 5 things that self-made millionaires do differently

          5 things that self-made millionaires do differently

          March 1, 2022
        • Thinking of joining an MLM as your side hustle? Read this first

          Thinking of joining an MLM as your side hustle? Read this first

          February 23, 2022
        • 10 business lessons from a lemonade stand

          10 business lessons from a lemonade stand

          December 9, 2021
  • Watch
  • Buy The Book
  • About
Small Business & Finance Network
Advertise
Partner Content

Ever wondered how your credit score is calculated? This burger explains all

Martin Wanless - May 4, 2021 3 MIN READ
This burger reveals how your credit score is calculated

In partnership with

Whether it’s for a home or car or to invest in your business, getting credit is part of life. Knowing how your credit score is calculated is really important – so let’s break it down in simple terms.

We all know that we have a credit score: that magical number that can determine our financial fate, one application at a time.

But do you know exactly what factors make up your credit rating? If you don’t, you should, because it can make all the difference in the world to your financial health and how you go about accessing finance for any moment in your life that calls for it.

What is a credit score?

First, let’s get into the nitty gritty. Each and every one of us has a credit score, a number that essentially gives a lender an idea of how safe a bet you are when it comes to lending you money.

The better your credit score is, the more likely you are to get approved for that loan you applied for; and the more favourable your interest rate is probably going to be.

The further down the credit score chain you are, the more likely you are to be turned down – or, at best, invited to pay a higher interest rate.

Your credit score is usually a number between 0 and 1200. “Good” credit scores are normally from 600 and upwards.

Sounds straightforward enough – but what factors contribute to your credit score, and how are they weighted?

To understand that, let’s imagine your credit score as a big, juicy burger…

The tastiest credit score

A great burger is an Australian classic – vegetarian options available, of course. So what’s better than a good ol’ burger to help visualise how your credit score is calculated? Here’s a tasty one from GetCreditScore, which calculates your credit score for free.

How your credit score is calculated

Image: GetCreditScore.com.au

Your credit burger ingredients

51 per cent credit enquiries

30 per cent repayment history

10 per cent adverse events

3 per cent personal information

3 per cent credit limits

3 per cent length of credit history

First, we roll

First up: the bread roll. Never mind the filling – the bread can make or break a burger, and these two pieces account for more than 80 per cent of your overall credit score.

Let’s consider the credit enquiries you’ve made over the past five years. Think of this as the big, thick bread on top of your burger, which accounts for a whopping 51 per cent of your credit score. So, if you’ve been applying for credit left, right and centre to ‘see what’s out there’, just stop – now. Unless you definitely need all that credit that you’re applying for, you’re causing yourself some pretty serious damage.

Next, we repay

The second most important factor that contributes to your rating is your repayment history – how reliable you have been at meeting your repayments on past loans. Having a history of reliable, on-time payments is understandably important to lenders, and this accounts for a tasty 30 per cent of your overall credit score.

Then, we fill

Finally, the filling is the last component in how your credit score is calculated. Whether a juicy beef patty floats your boat or a chickpea burger is more your style, the filling is a key component. It accounts for the remaining 19 per cent of your credit score.

The filling includes adverse events, making up 10 per cent of your score. So, if you’ve had defaults, credit-related court judgements or bankruptcy recorded, that’ll be accounted for here.

The smaller parts of the burger include having up-to-date personal information, existing credit limits and the length of your credit history. An older file may have a lower level of risk than a newer file, which means an easier approval for a loan. The age of the credit file helps to balance out any anomalies (for example, that time you forgot to pay your electricity bill) against your usual pattern of behaviour (all the many times you paid on time).

Understand your own personal credit burger

GetCreditScore.com.au – backed by Equifax, the leading credit-scoring bureau in Australia – is one of the country’s leading free credit score providers, empowering Australians to achieve their financial goals.

It gives you free access to your credit score to help you understand where you currently sit.

And, by understanding your own mix of ingredients, you can proactively work towards improving your credit score each and every day.

What does your burger look like? Head on over to GetCreditScore and find out now.

This article is brought to you in partnership with GetCreditScore.

Previous article 3 simple tips to stop overspending
Next article Proven strategies to get the pay rise you deserve
Via Partner Content
Tags Credit cardsDebtMortgageYour Money
Martin Wanless

Martin is an experienced freelance writer and content strategist, specialising in finance, insurance, tech and HR. He’s been creating B2B content in the UK and Australia for over 20 years. Before co-founding his own small business bywanless.com.au in regional NSW, he was head of content at a Sydney agency for the best part of a decade.

Share This
  • COMMENTS

Trending

  • 101 frugal tips to live a richer life 101 frugal tips to help you live a richer life
  • Stop doing stupid shit with money Stop doing stupid shit with your money
  • Supercharge your super 6 strategies that can supercharge your super
  • Are you hard-wired to be bad with money Are you hardwired to be bad with money?
SUBSCRIBE TO KOCHIE'S FREEWEEKLY NEWSLETTER

Weekly money, life and business news delivered to your inbox.

  • This field is for validation purposes and should be left unchanged.

Latest News

What's on the ATO hit list this financial year News What’s on this year’s ATO hit list?
David Koch - May 20, 2022
This is why rents are skyrocketing News This is why rents are skyrocketing and bidders are withdrawing
David Koch - May 12, 2022
Enough with the hysterical coverage about interest rates News Enough with the hysterical coverage about interest rates
David Koch - May 6, 2022
Kids savings accounts - which are better Your Life Finding the best kid’s savings accounts is certainly not child’s play
David Koch - May 2, 2022
ATO tax scam warning News Warning from the ATO about a rampant tax scam
David Koch - April 29, 2022
Teens and money - compound interest Your Life Teens and money: Help your teen unlock the power of compounding
Kate McCallum - April 25, 2022
Set some debt limits Your Life It’s time to take control and set some debt limits
David Koch - April 22, 2022
Approved charity donations News ATO warning on what constitutes an approved charity donation
David Koch - April 18, 2022

  • About Your Money & Your Life

Privacy Policy. Disclaimer: Your Money & Your Life contains general financial information only. It should not be relied on as finance or tax advice. You should obtain specific, independent professional advice from a registered tax agent or financial adviser in relation to your particular circumstances.
Copyright 2021 Pinstripe Media - Digital Publishing and Video Production Agency Sydney
ADVERTISE