How doing nothing can affect your credit score

Your credit score gives an idea of your creditworthiness. It’s used by lenders when deciding to offer you credit. Your score can change regularly and can move up or down depending on a number of factors. 

But did you know that doing nothing can affect your score? 

Here are the top ways that doing nothing can affect your credit score.

New comprehensive data added

You can learn the ins and outs of Comprehensive Credit Reporting here. But to sum it up in a few words, from 1 July 2018 the major lenders in Australia were compelled to report at least 50% of comprehensive data to all of the credit bureaux, with 100% of the data to be added by July 2019.

This means new information could be added to your credit report even though you haven’t done anything differently.

The extra information includes details of your repayment history for loans and credit cards. If over the past two years you’ve been making repayments consistently and on time, this will be likely to produce an improvement in your score.

If you miss a repayment or pay it late, this could see your score drop. If this happens, get back on track, or contact your lender to arrange for extra time to pay–preventing future late repayments from damaging your score further.

Not checking your credit report for errors

If you do nothing and don’t check your credit report regularly, there is the chance an error might be recorded on your file which is negatively impacting your score.

Identity theft and fraudulent activity do unfortunately happen, so keeping an eye on your report, to spot anything unusual and get it fixed, can improve your score.

A listing on your credit file expires

Information is not held on your credit file forever. After a certain length of time, the listing will be removed.

This is where doing nothing can allow for positive or negative activity to be wiped from your report.

Here’s what’s recorded and how long each record lasts.

  • Repayment history: with the new comprehensive credit reporting, repayment history is kept on your credit report for a period of two years. Your repayment history shows if payments are made on time each month.
  • Credit enquiry: when you apply for a credit product, a credit enquiry is added to your credit file. This stays on your report for five years. How these enquiries affect your score can depend on how often and how recent they are. The type of credit you applied for, and who the lender was, are also listed.
  • Defaults: you’ll have a default recorded on your credit file if you have a payment of $150 or more overdue by greater than 60 days. These defaults stay on your file for five years. Settling a default won't remove it from your file, but it if lenders can see it was a one-off this could be viewed less unfavourably.
  • Court judgements: if you have a court judgement this will stay on your file for five years from the date the judgement was given. This information will be sourced from public records by the relevant credit bureau.
  • Bankruptcy: your credit file will include publicly available information about any bankruptcies you have faced. It may also include other personal insolvency information such as debt agreements or personal insolvency agreements. Generally, this will stay on your credit file for five years, but in some cases, it could be up to ten years.
  • Serious credit infringements: this happens if you’ve fraudulently obtained or attempted to obtain, credit, or you’ve stopped making payments and the credit provider hasn’t been able to reach you in more than six months. Serious infringements stay on your credit report for seven years.

 
As you can see, doing nothing can have an impact on your score. As a first step, it’s a good idea to review your credit file to ensure there are no errors on it. 

Also, take note of any negative information on your credit file that might be about to drop off, which could put you in a better position.