So, credit scores are supposed to be an indication of whether someone is able to repay credit, right? So the richer someone is, the higher their score must be, right?
To answer this we need to look at these two things: what is held on your credit file and hence used to calculate a credit score, and what isn’t.
Ok, so what is on your credit file?
At the moment other than your personal information such as name, address, date of birth and sometimes driver’s licence and employer name, it is centred on what is called ‘negative’ information.
Negative information includes credit enquiries (applications for credit products), defaults, serious credit infringements, court judgements and bankruptcies.
Historically, Credit Reporting Bodies (CRBs) in Australia haven’t even had access to your repayment history or balances so they haven’t been able to take this into account either. But now that’s changing with what is known as Comprehensive Credit Reporting (CCR).
It means that good behaviour like paying your bills on time should be rewarded with a higher credit score! However we’re still in a transition period as providers opt-in to this way of credit reporting so this will take some time to filter through.
Right then, what isn’t on your credit file?
Two words, income and assets.
CRB’s have no visibility on what you earn or what you have. They don’t know if you run the company or sweep the floors. They don’t know if you have any savings, super, property, cars, or even that collection of vintage teapots your great grandmother left you.
So rich people don’t all have great credit scores?
Not necessarily. Basically, it’s not about what you have but how you interact with credit and credit providers. Generally, if you do the right things you should see your score move in the right direction, regardless of whether you’d consider yourself rich or not.
You can check out our credit knowledge centre for some further information about how credit scores are calculated.
Have you got any savvy tips that have helped you manage your credit score? Let us know in the comments below!
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