Credit scores and credit reports 101

Credit scores | Australian credit agencies | Good and bad credit scores | How to improve your score | FAQ’s

Manifesting your dream home? Or a new flash set of wheels? Hoping to get the latest iphone model? If you’re in the market to borrow some money and make your dreams come true, a good credit score is going to be important to you.

Credit Scores

Credit scores are what lenders use to determine how risky you are to lend to. They are calculated based on your financial history, taking into account things like if you’ve paid your bills on time throughout your banking life, how much credit you already have and how many previous applications you’ve made. The score is rated between 0-1000. The higher the score, the more credit worthy you are.

A lower score implies you’re a risky person to lend to

Credit scores are created by credit reporting agencies such as Experian, Equifax and illion. They use your data and previous credit history to determine your score. Lenders then use that score to see if you’re a safe-bet when it comes to loaning to you. Don’t bury your head in the sand when it comes to finding out your score. If you’re worried about it, there’s ways to improve it which we’ll run through in this guide.

High credit scores – the world is your oyster

Goody two shoe swhen it comes to paying your bills on time? If you’ve acted responsibly with credit over the years it’s likely you’ll have a high credit score. You might be eligible for peer-to-peer lending where you’re rewarded for your higher credit score with lower interest rates. As a responsible lender, you’re also in a good position to haggle a deal on your current loan agreements. Don’t be afraid to pick up the phone to ask. No harm can come from trying! Why not also be rewarded for your sensible spending. Whether it’s rewards points, bonus sign ups, concierge services, getting a new line of credit can open you up to a heap of exciting rewards in return for your everyday spending. The world is your oyster when you’ve got a high credit score.

Who are the credit report agencies in Australia?

Credit report agencies or credit bureaus collect your financial data from credit providers which is what makes up your score. There are three in Australia; Experian, Equifax and illion. Each are required to give you a free copy of your credit file if you haven’t had one in the previous 12 months. You can also request a free copy if you’ve been refused credit within the past 90 days, or your credit-related personal information has been corrected. Each one may have different information about you, so it’s worth inquiring to all.

What are good and bad scores?

Equifax

Below Average Average Good Very Good Excellent 0-505 506-665 666-755 756-840 841-1,200

Experian

Below Average Fair Good Very Good Excellent 0-549 550-624 625-699 700-799 800-1,000

illion

Zero Score A Low Score Room for Improvement Good Great Excellent 0 1-299 300-499 500-699 700-799 800-1,000

How can I get a bad credit score?

You might find yourself on the lower end of the scale if you’ve made a bunch of credit applications that have been rejected and missed a few payment deadlines. Bad credit ratings are considered anything below around 500 which could hinder your ability to get a line of credit when you most want it.

How to improve your credit score

Low credit rating? That sucks! There are a few tips and tricks to help you improve it. Check your details: If you’ve got a credit report with a low score, make sure all your details are correct. It’s common for details to be wrong like doubling up on debts. Have you moved house or changed jobs? Make sure your lenders are informed of your new information. If you do find an error, speak to the credit agency so they can look into it. You might need to get proof of the errors to supply back to the credit provider for you to be reassessed for credit.

Credit limits

How much are you trying to borrow? Are you being realistic on your repayments? If you already have some lines of credit you’re not using can those be reduced to make the new application not seem as daunting?

Get organised

Have you been known to miss a bill or two? Now is the time to turn things around. The longer the banks can see you’ve been a reliable spender that repays your bills on time, the better. If you have outstanding debt, can you make a repayment plan to get the balance down and close any cards you no longer need? Get organised with a budget that stops you unnecessary spending to get your debt back-on-track.

One thing at a time

This isn’t online shopping where you can order the same thing in multiple sizes to get the right one for you. You may not know it, but applying for multiple cards at the same time can have a negative effect on your credit score – especially if you get declined. Every time you apply for credit, that application is recorded on your credit report. Wait for one card to expire before applying for a new one rather than doing a scattergun approach.

Don’t bury your head in the sand

A credit score on the low end isn’t going away if you just ignore it. Make the improvements mentioned above and you should start to see some improvements after a few months. Your initial score might affect how long it takes to see any changes. But don’t worry, one late payment from 10 years ago isn’t going to sit on your file forever, these drop off overtime. Really, the main way to improve your score is to make positive changes making you appear more reliable in the eyes of the lenders.

FAQ’s

What is a credit score?

A credit score is a number given between 0-1000 based on your financial history that depicts your creditworthiness. The higher the score, the better.

How do I find out my credit rating in Australia?

Credit bureaus like Experian, Equifax and illion are where to go. They are required to give you a free copy of your credit file if you haven’t had one in the previous 12 months.

Other than credit score, what other factors affect my loan amount?

As well as your previous repayment history there are a few other things that determine how much you’re lent. Having a stable role with a regular income and not having a heap of debt in other lots of different places can help.

What bills affect my credit rating?

It’s not just big things like home loans that affect your score. Not paying your utilities, mobile phone or credit card bill on time can all have a negative affect. Every time you apply for a credit card, it will be recorded on your credit file. So don’t apply for them willy-nilly as this can affect your rating.

Why am I declined for a credit card?

Lenders base a large part of their decision making on your credit score. If you have a bad credit history and low credit score, you’re unlikely to be approved for a credit card.

What is a “good” credit score?

Generally speaking a score over 600 is “good”. Although each bureau has different scoring systems. That’s why it’s good to request a report from more than one.

I want to dispute my credit rating

You always have the option to go to the ombudsman if you wish to dispute your rating. The Office of the Australian Information Commissioner (OAIC) is the top of the chain when it comes to challenging your score only if you have made all sensible attempts to improve your score and exhausted all other options.

General Advice Warning

The information provided is of a general nature only and does not take into account any personal objectives, financial situation or needs. Before making a decision you should consider the appropriateness of the information having regard to your personal circumstances. Always read the full terms and conditions.