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What is a credit score?

Written by

Shaun McGowan

Your credit report is a history of borrowing and other personal and financial information kept by credit reporting agencies. Your credit score boils all this information down into a single number that represents your reputation or quality as a borrower - the higher the score the better.

Lenders use your credit score to profile you as a borrower and help decide whether to lend you money and what to charge if they do. Credit scores range from 0 to 1,000 or 1,200, with 1,000 and 1,200 being excellent scores.

If you’ve never made a credit enquiry or held a utility account you may not have a credit report or credit score.

Luckily, most lenders will still lend to you if you don’t have a credit score. The best way to improve your score is to apply for credit, utility accounts or credit cards and make regular, on-time repayments.

Checking your own credit score will not affect it. However, if you apply for credit and lenders check your credit score that may negatively affect it.

If after checking your credit report you find inaccuracies or double listings contact the relevant credit provider to request that the listing be removed or amended.

If the credit provider refuses you can submit a request to have the listing removed with the credit reporting agency.

Where to find your score

You can check your credit score for free with an online credit agency:

To get your score you may have to sign up and provide an email address and a password. Once you’ve got an account you will need to provide further details like your:

  • Full name
  • Driver Licence number
  • Residential address
  • Date of birth

There’s no need to pay to access your credit score so avoid providers who ask for credit card details.

How credit scores are created

Your credit score takes into account personal information, information on your borrowing and credit applications and details of your business interests.

That includes how often you move house, repayment history and any current credit. That information is then boiled down into a single number.

Positive events increase the number while negative events will decrease it.

Credit scores are split into five ranges, from low to excellent. Each of the three main credit rating agencies in Australia uses slightly different ranges for credit scores.

Credit score ExperianEquifaxCredit Simple

Excellent

800-1000

833-1,200

800-1000

Very good

700-799

726-832

700-799

Average

500-699

622-755

625-699

Fair

300-499

510-621

550-624

Low

0-299

0-509

0-549

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How a credit score affects your borrowing power

The range that your credit score falls into could affect your ability to secure loans, credit cards and other forms of finance. Here’s an example of what each range means:

Excellent 

An excellent credit score shows lenders that you have a strong credit history. You should be able to access credit easily, including the best interest rates and favourable loan terms. You may even be able to ask for discounted fees or negotiate better interest rates with your current lender.

Very Good

Provided you are able to make repayments you should be able to secure finance easily with a very good credit score. You may not get rates as good as those with an excellent credit score.

Average

An average score may mean higher rates and stricter terms than very good and excellent scores, but in most cases, you should still be able to secure finance. 

Fair

A fair credit score may affect your ability to secure finance. Lenders may offer you higher interest rates and look very closely at your finances to ensure you have the ability to make repayments.

Low

A low credit score indicates to lenders that you have bankruptcies, defaults or other negative events in your credit history. Traditional lenders may deny your applications for finance or charge you higher interest rates.

In most cases, you’ll still be able to borrow money if you have a bad credit score but lenders may charge you higher interest rates and fees. If your credit score is very bad you may only be able to borrow from a lender who specialises in bad credit loans.

What is in your credit score file

Your credit report includes a number of personal and financial details:

  • Personal details like age, employment and the length of time you’ve been at your current residential address.
  • Credit products you’ve used in the last two years. Including the: Credit limit Type of credit Opening and closing dates Credit provider details
  • Credit applications. Every time you apply for credit.
  • 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 writs, bankruptcies, debt agreements and/or judgements, especially those relating to financial difficulty or impropriety.
  • Company directorship. If you’re the director of a company, details of the company may appear on your credit report.

Comprehensive Credit Reporting (CCR)

CCR, or Comprehensive Credit Reporting, is a new credit reporting system that was introduced in 2018.

The updated system shows positive credit actions as well as negative ones, meaning lenders are able to see if you’ve been making repayments on time or settling debts. These actions have a positive effect on your credit score.

What’s more, CCR gives borrowers more power over their credit scores requiring that lenders and credit reporting agencies:

  • Take steps to help you fix incorrect information in your credit report.
  • Respond to complaints within set periods of time.
  • Not misuse the information in your credit report (to market financial products and services to you, for example).

How different actions affects your credit score

Each of the items listed above will have either a negative or positive effect on your credit score. Here’s an example of how certain actions could affect yours:

Decrease your credit score (bad)Increase your credit score (good)

Late payments and/or defaults

Consistently making debt repayments on time over a long period of time

Applying for credit cards, loans and other forms of finance too frequently.

Paying your bills on time

Paying bills over $150 late by 60 days or more (e.g. power or internet bills)

Having a credit limit higher than your credit balance

Court writs against you for financial matters

Paying off debt loans and credit cards.

Bankruptcies that were within the last five years and/or bankruptcies that ended within the last two years

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What having a bad credit score means when applying for a loan

Having a bad credit score isn’t the end of the world but it can make securing credit more difficult. Here’s how it could affect you:

  • Lenders may deny your applications for credit. That includes personal loans, credit cards, vehicle loans and home loans.
  • If your application is accepted you may be offered higher interest rates and/or more restrictive loan terms.
  • In rare cases, if your credit score is very bad, utility companies (electricity, gas, internet, phone) could refuse to provide you services.

If lenders deny your applications you may still be able to access credit with lenders who specialise in bad credit loans. However, these often have much higher interest rates and fees than other products on the market.

How to improve a bad credit score

If you have a bad credit score you may be able to improve it over time by taking a few simple steps. Here’s what you can do:

  • Find out your credit score and view your credit report The first step toward fixing your credit score is knowing what it is. Check yours and view your credit report with one of the agencies listed above.
  • Check for any incorrect items Go through your credit report and check for any incorrect items. These might include a double listing of debts, or debts that aren’t yours. Contact the credit reporting agency or the credit provider to clear up any errors.
  • Pay off any defaults If you have defaulted on any payments to credit providers, paying them in full may improve your credit score.
  • Stop applying for credit Enquiring for credit several times will have a negative impact on your credit score and may cause lenders to regard you with caution. If you’ve got a bad credit score it may be best to stop applying for credit and seek financial advice.
  • Make regular repayments over time The best way to repair a bad credit report is to simply make regular, on-time repayments to your existing debt over time. The longer you do this, the more your credit score will improve.
  • Wait for negative events to be removed Over time negative events on your credit score are removed: Payment defaults are removed from your credit report after five years. Bankruptcies are removed from your credit report either two years from the date your bankruptcy finishes or five years after it begins - whichever is longer. Debt agreements are removed after five years in most cases. Court judgements are removed after five years. Credit enquiries are removed after five years. Late payments are removed after two years.
  • Seek financial advice If you’ve got a bad credit score and/or a debt problem it’s a good idea to seek expert financial advice. They’ll be able to provide advice on how to improve your situation, negotiate with lenders, explain your alternatives and help you apply for assistance if you’re eligible.

Your credit score in summary

Your credit score boils your financial and borrowing history down into a single number that lenders use to profile you as a borrower.

  • If you have a low credit score borrowers may not approve your applications for credit or they might charge you higher interest rates and fees.
  • You can check your credit score and credit report for free online by visiting the websites of credit reporting agencies.
  • Your credit report will include personal and financial information, including the credit you have, any credit applications you’ve made and details of bankruptcies or court judgements.
  • Negative events like late payments and bankruptcies can decrease your credit score. Positive events like making regular debt repayments on time can increase your credit score.

Find out what you could borrow without affecting your credit score

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About the Author

Shaun McGowan from money.com.au

Shaun

McGowan

Shaun McGowan

Shaun is the founder of Money.com.au and is determined to help people pay as little as possible for financial products. Through education and building world class technology. Previously Shaun co-founded CarLoans.com.au and Lend.

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Money Pty Ltd (trading as Money.com.au) provides information about credit products and is authorised to do so as the holder of Australian Credit Licence 528698. Money.com.au does not compare every Lender in Australia. We are not a broker or credit provider and when we provide information via this website, we are not providing you with a recommendation or suggestion about a particular credit product. When you apply for a credit product via the Money.com.au website, you are not applying with us, you are applying directly with a Lender Partner. Before entering into any credit product from one of our Lender Partners, you should confirm the rates and product information with the Lender. All information on this website is general advice only and does not take into account your objectives, financial situation or needs. You should consider whether this advice is right for you and we encourage you to seek independent financial advice.