Credit Scores: Your Ultimate Guide ( 2021 )

Credit Scores: Your Ultimate Guide ( 2021 )

When you mention credit scores, some get scared, those who are not worried, and those who haven’t clue what a credit score means.

This article will highlight everything you need to know about credit scores and how they can affect your business.

If you’re in business, having a good credit score is vital if you want to borrow money; it’s one of the first things banks and many other financial institutions inspect. And, we all want a great one; who doesn’t? Most people don’t know what will affect your credit score other than paying off your credit cards on time.

According to the Australian Government website MoneySmart; Lenders use your credit score (or credit rating) to decide whether to give you credit or lend you money.

If you have a bad credit rating and need money, having a negative or poor credit score can affect your ability to get the money you need to finance the growth or startup of your business.

Also read: 10 easy ways to boost your credit rating

A credit score is based on a credit report, and you can download your free credit report from The Office of the Australian Information Commissioner.

Here’s everything you need to know about your credit score

1) Get a copy of your Credit File

As stated above, you have to obtain a copy of your credit report to know your rating.

2) Correct any errors

According to CHOICE, 18 CHOICE staffers had reports with errors or entries that were surprising and confusing.

Your credit report may and, in many cases, have a mistake that needs investigating and fixing. There are three central credit agencies in Australia where your credit report is audited and corrected if required. They will explore any issues quickly and help improve your credit score, so it looks more appealing in the bank’s eyes.

3) Don’t Be Debtless

Don’t have the attitude that debt is a bad thing. Don’t go splurging on your credit card but try to have some credit history to show lenders that you can repay loans and that you are responsible for repaying debt.

Having zero credit history means there is nothing to calculate your credit score, so most if not all lenders will think that you are a high-risk business unless you can prove otherwise. If you have never had a credit card or a loan, it is difficult to show lenders that you can repay debts on time. Over time, increase your borrowing limits, within your capacity, and repay these to improve your credit score.

If you are considering finance for your business, learn about secured business loans from Sparrow Loans.

4) Manage Your Payments

Pay your credit cards and loans on time. Many cards will allow you 30 days to repay without incurring additional interest charges. But, if you leave it extended out to 60 or even 90 days before you make a payment, this can affect your credit history. Be punctual and be diligent when repaying your credit cards to help establish a good record.

5) Obtain a Credit Report Every 12 Months

I know this can be a hassle, and you might think it’s a waste of time but try to get a credit report once a year and take a look through it to ensure there are no mistakes. Being proactive like this is a great way to ensure that you maintain a good credit score – you never know when you’ll need to borrow money, especially if you’re running a small business!

How is your credit score calculated?

Your credit score can be affected by a range of factors, including:

  • Numerous credit enquiries in a short time frame – this could show that you are using one credit card to pay off another. Not a good idea and is a huge red flag to credit agencies and lenders. Try to stick to one credit card and pay it off.
  • Nominations to be a guarantor – if you have to get too many different people to guarantee loans for you.
  • Overdue debts and defaults – keep them to zero and pay everything off, even if it’s a minimal debt.
  • Bankruptcy
  • Late payments for mobile phones, electricity and gas services – pay bills as soon as you get them as this will affect your credit score.
  • Interest-free store finances – watch out for these as they can add up quickly on your shopping trips to Westfield.
  • Court writs or judgements

Who looks at your credit score?

These are just a few of the places:

  • Banks and other non-bank financial institutions
  • Rental agents
  • Insurance companies

3 facts on defaults:

How can my credit score be affected if I don’t pay my loans on time?

#1: If you don’t repay the interest or loan amount on their due dates for your credit card payments, car repayments, mortgages, household utility bills (your personal credit score as a Director is just as important as your business credit score) and other business creditors, you are at risk of defaulting on your loans or payment obligations.

#2: A lender will issue a default notice when you fail to pay the debt on time. Legally they must send you reminders, but if you ignore this and hope it will disappear, it won’t! They will serve you a default notice.

#3: If you still fail to repay the amount and fail to do this, your credit score will be affected immediately. This is where things can get nasty, which is not suitable for you, your business or your credit score.


Planning to borrow money, just checked your credit score and your freaking out? Don’t! There are ways to improve it, and things you can do to turn things around that will put you in a position to borrow money.

Otherwise, there are lenders like Sparrow Loans that can look beyond a credit score to understand any specific reasons that may have caused you or your business to default on your payments, and even assist you in refinancing your loans to payout some creditors that may be on your back.

About the author

Ulrika Lobo

Ulrika Lobo is the lending specialist at Sparrow Loans and has over ten years of experience in the commercial business loan space. Ulrika co-founded Sparrow Loans to provide Australian SMEs with a faster and easier way to access finance. Ulrika is responsible for managing the lending process from underwriting to execution and settlement and post-settlement support.