Understanding credit scores

Understanding credit scores


Credit scores are an impact factor in determining an individual’s credit worthiness.

When an individual applies for a loan, such as a mortgage or car loan, a credit provider will use a credit score to help them decide whether to lend the money, the amount to lend and the interest rate.

An individual’s credit score is calculated using the individual’s personal details; the type of credit providers used and amount of credit borrowed; any unpaid debts; the number of credit applications made and considers any debt or personal insolvency agreements relating to bankruptcy.

A credit score is rated on a five-point scale:

  1. Excellent: highly unlikely to have any adverse events harming your credit score within the next 12 months
  2. Very good: unlikely to have an adverse event in the next 12 months
  3. Good: less likely to experience an adverse event in the next year
  4. Average: likely to experience an adverse event in the next year
  5. Below average: more likely to have an adverse event in the next year

To prevent a negative credit score, individuals should try to spread applications over a larger amount of time; lower credit card limits; ensure their credit card is paid in full each month; and pay their rent, utilities and other loans on time.

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If you believe the matters discussed above are relevant to your business, please contact Darren Smith of our office to discuss further.


Darren is a Chartered Accountant with extensive experience, including working in the big 4 and medium sized firms before becoming a partner of a city based firm in 2000.

He has gained much experience and has extensive knowledge in providing business and taxation advice, superannuation planning, negotiation of sales and acquisitions of businesses and property development. His client base covers a wide range of industry groups.

Darren works with business owners to grow their businesses and create personal wealth within and outside of their business.


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