What is a credit score?
Your credit score is a number that represents your track record as a borrower. It's calculated by credit reporting companies based on information in your credit report, and in Australia these scores range from 0-1200. As a general rule, the higher your score, the lower your perceived risk as a borrower, which can make it easier to get approved for credit or access better interest rates.
Various factors affect your credit score, such as the loans and credit cards you've applied for, how much you borrowed and how consistently you paid it back. Positive habits such as paying bills on time and limiting how often you apply for new credit can help strengthen your score over time.
Negative information like any payment defaults are captured in your credit report and will also be reflected in your credit score.
Recent data offers some insight into how Australians are tracking overall when it comes to their credit score. The average credit score among Australians is 861 according to credit reporting company Equifax. That means on average Australians have an ‘Excellent’ credit score.
Benefits of checking your credit score
Having a healthy credit record makes a big difference when you apply for new credit. You see, lenders in Australia check your credit score and report before deciding whether to lend to you and how much. They’ll also use this information when calculating your interest rate, particularly on car loans and personal loans.
A good credit score can mean a lower interest rate. A bad credit score can mean the opposite. Analysis by Money.com.au found that, on average, borrowers with a ‘good’ credit score qualify for rates that are 3.66% lower than those with an ‘average’ credit score.
So, checking your credit score BEFORE you apply can help you understand whether you’ll be approved for credit AND how much you’re likely to pay.
What will you need to check your credit score?
Your name
Your current address (and previous two addresses)
Your date of birth
Your driver's licence number
What you will see in your credit report
Your credit report includes personal and financial details:
Personal details
Information such as your age, employer, and the length of time you have been at your current address.
Credit products
What products you’ve used in the last two years, including the credit limit, type of credit (car loan, personal loan, home loan etc.), opening and closing dates, credit provider details.
Credit applications
Every time you have applied for credit and how much you’ve borrowed in total.
Credit report requests
Every time a credit provider requests your credit report that is recorded.
Defaults
Including information on overdue debts or credit infringements. That includes defaults on utility bills, credit cards, loans and other finance products.
Court decisions
Such as bankruptcies, debt agreements and/or judgements relating to your finances.
Company directorship
If you’re the director of a company, details of the company may appear on your credit report.
What can you do once you've checked your credit score and report?
If your aim is to get on top of your finances, knowing your credit score is an important first step.
But the real advantage is in what it allows you to do next.
- See what loans and rates you’re eligible for based on your score
- Check and fix any incorrect items (e.g. if you score is lower than it should be)
- Identify signs of fraud so you can report them (again usually if your score has dropped unexpectedly)
- Identify what is negatively affecting you so you can improve your credit score
- Pay off any defaults that are listed on your report
- Monitor how your changes are positively affecting your score
Understanding and improving your credit score gives you a better chance of loan approval, lower interest rates and more borrowing capacity if you need it.
