If you’ve ever borrowed money, had a credit card or even applied for finance, there’s a record in your name known as a credit score.

The number – which is usually between zero and 1,200 but varies depending on the ratings agency – is often used by lenders to assess how creditworthy you are.

In other words, it gives institutions an idea of how likely you are to pay back money you’re loaned on time, based on your past behaviour.

If you have a low or bad credit score, a lender may reject your loan application.

Conversely, if you have a ‘very good’ or ‘excellent’ credit score, you may be able to get a better deal than other borrowers – such as lower interest or more favourable terms.

With that in mind, here’s how a credit score is calculated and where to find your rating.

What makes up a credit score?

To calculate your credit score, ratings agencies look at what’s known as your credit report, which gives them a history of your recent borrowing behaviour.

The report states how much you’ve borrowed in the past two years, how long it took you to pay back the money you’ve borrowed, how many credit products you have and have applied for, and even how many requests you’ve made to look at your credit score.

It also contains information about whether you’ve been unable to pay a bill or have declared bankruptcy in the past five years (sometimes this information stays on your credit report for longer if the creditor can’t contact you).

Based on all of that, credit ratings agencies assign a score to tell lenders what level of risk they would be taking on by giving you further credit.

How to check your score

Several agencies, like Equifax and Credit Simple, allow you to check your credit report for free, but as hinted at above, multiple applications can reduce your score.

To get your report, you’ll have to enter some personal details, like your name, address and identification details (driver’s licence or passport number). Before giving away those details, just make sure you’re dealing with a legitimate agency.

What to do if you notice a mistake

Sometimes credit reports contain information that’s incorrect. For example, a report may say someone has taken out a loan that they haven’t.

It’s important to get these details corrected with the ratings agency, as they can affect your future loan applications. Agencies usually offer this service for free.

Is information on your credit report permanent?

Our financial patterns tend to change over time, so information on your report doesn’t last forever.

Most information, from current loans to history of bankruptcy, stays on the report for between two and five years. The major exceptions are more serious credit penalties – such as someone being unable to be contacted – which can stay on the report for up to seven years.

Story from Customer Owned Banking Association

The information in this article has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained in the document is general advice and does not take into account any person's particular investment objectives, financial situation or needs. Before acting on anything based on this advice you should consider its appropriateness to you, having regard to your objectives, financial situations and needs.