Three things that can hurt your credit score

Did you know you might unwittingly be engaging in credit behaviour that may be detrimental to your credit score and therefore your ability to access credit in the future?

A credit score is calculated by an algorithm that takes into account your credit history, credit profile and aspects of your credit applications.

Typically out of 1000, it can be used by lenders to assess how risky it is to lend to you. Here are three things that might be affecting your credit score:

Making a large number of credit applications in a short time frame

When you apply for a credit product such as a credit card or loan, the lender can make an "enquiry" at a credit reporting body.

This leaves a footprint on your file showing you've applied for credit - and it stays on your credit file for five years.

We found that Australians with at least five credit card enquiries on their credit file had an average credit score that was 128 points lower than Australians without any enquiries.

If you apply for a new credit card every year, you could end up with five enquiries and potentially hurt your credit score.

Using credit providers and credit products that may be viewed less favourably

Not all credit providers and products are viewed equally when calculating your credit score.

For example, an application for a payday loan (sometimes called a small amount loan) is generally given a different weighting compared with other types of credit when a credit reporting body calculates your credit score, and could potentially lower it.

Likewise, there may be varying degrees of risk associated with using rent-to-own store finance, while unsecured credit in general can be seen in a different light than secured credit.

Not checking your credit file for errors

It is important to actively monitor and check your credit file for errors.

Examples of errors that may be unfairly affecting your credit score include duplicate entries, misleading information or incorrect listings.

If you notice errors on your file, you should first contact the credit provider that has provided the incorrect detail, or contact the relevant credit reporting body.

Incorrect listings can also alert you to instances of identity theft, so checking your file regularly is a good idea.

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