Increasingly lenders are using individual and business credit scores to determine not only who they will lend to but also what terms and pricing might apply. So, it is now critical that all potential borrowers know this and how imperative it is to maintain a positive credit score.

This represents a change from the information that has historically been available within credit reports, and how lenders have traditionally used credit reporting.

Historically most credit checks (business and personal) were clean and only material credit events were reported. Unless a creditor had gone to the effort of lodging a default or where a default had progressed to being dealt with by a collection agency or resulted in a court judgement or bankruptcy both businesses and individual credit reports typically appeared “clean”. Lenders would normally steer clear of companies or individuals with serious or multiple adverse credit reporting, but minor defaults could usually be explained and mitigated, and minor late payments would not be reflected at all on credit reports.

The major shift is that the historical negative only reporting model has been superseded by the current model that considers both negative and positive information. This contributes to each individual and business having a credit score.

All credit scores reflect the activity on the associated credit file, which covers activity related to:

• Age of an individual
• Geographic location
• Age of the credit file
• Changes in address
• Frequency of applications for credit or finance
• Lenders you apply for credit or finance from
• How well (or not) you have repaid any credit or finance company debt
• Company affiliations
• Outstanding court fines

Most importantly, payment trends within your credit cycles can impact your credit score. Frequently paying creditors late may materially impact your credit score in a negative way, even if these bills are caught up. Aside from credit providers such as banks and finance companies, other creditors such as telecommunication providers, power utilities, and insurers report payment information to credit agencies.

The impact of a weak credit score can materially impact your ability to borrow, the terms under which borrowing will be made available, and the price at which this credit will be made available. We are increasingly seeing lenders use business and individual credit scores as a key part of their credit assessment. Our key message is to protect your credit score, and be aware that minor payment behaviours can negatively impact your credit.