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A Guide To Understanding Your Credit Score

Updated: Feb 5



You already know that credit scores are a powerful driver of financial freedom. A good score in Australia is one of the most important factors for attaining lower interest rates, faster lender approval, and new financing opportunities.


But understanding the nuances of credit can be less than straightforward. If you don’t have much experience with credit or aren’t sure why your score is on the lower side, you’ll be happy to know that the formula isn’t as cryptic as it sounds.


Let’s walk through a comprehensive credit score guide to answer your questions in detail, exploring credit score definitions, rating classifications, and easy ways to boost your score over time.


Understanding your credit score

A credit score is a measure of financial trustworthiness for Australian borrowers. Your score can range from 0 to 1,200 depending on the bureau in question, which in Australia, includes Experian, illion, and Equifax. For each bureau, you can follow a general rule of thumb: the lower your score, the poorer your credit (and vice versa).


Keep in mind that it’s possible to lack a credit score entirely. You may not have a score if you’ve never used a credit card or taken out a loan.


In either case, credit bureaus attempt to generate a personalised credit score using one of two types of reports:

  • Positive credit reporting – Also known as comprehensive credit reporting (CCR), this report addresses positive credit actions, like not maxing out credit limits and making repayments on time.

  • Negative credit reporting – These credit reports address negative credit actions, including hard inquiries, missed bills, bankruptcy, and more.

The findings of these reports change alongside your financial situation, going up or down depending on certain factors. How it works is a bit of a mystery since credit bureaus have never publicly explained their scoring process. However, we do know how each score is categorised — and what affects them over time.


Credit score rating guide

Credit rankings greatly impact what you can and cannot do in the financial world. For example, some banks won’t lend to individuals with scores under a particular bracket as they believe these types lack credit ‘trustworthiness.’


How do you know where you fall on the scale? It depends. Since each major credit bureaus report scores differently, you may fit into more than one credit category at a time.


In general, there are three to keep in mind:

  1. Excellent — Between 800 and 1,200

  2. Very Good — Between 700 and 832

  3. Average — Between 500 and 725

Anything less than 500 is likely a fair, poor, or bad credit rating, which can bar you from financial opportunities in the future.


Your comprehensive guide to credit scores and affecting factors

Credit bureaus regularly review your credit and report their findings to financial institutions. Every action you take will affect your score — some more impactful than others.


Several financial factors could reduce your credit score:

  • New credit applications — If you already have a less-than-average credit score, being rejected from new loan applications puts a hard enquiry on your account, which can hurt your credit history.

  • Missing bill payments — This will be recorded on your credit file if you are regularly late or miss bill payments altogether.

  • High debt ratios — While some credit utilisation is good, most bureaus penalise borrowers who’ve bitten off more than they can chew.

These are just a few of the most common factors that can affect your credit score. Some situations, including bankruptcy, could stay on your report for seven years. Others, like court judgements or black marks, could remain on file for up to a decade.


If you’re feeling overwhelmed by this, you’re not alone. Many people feel trapped by the revolving door of credit reporting and feel helpless to clean up their scores and improve their financial outlooks.


Fortunately, anyone can improve their current credit score — regardless of financial history. With some time, effort, and a little elbow grease, you can repair a poor credit rating and make room for new possibilities.


How to boost your credit score

You may not be able to change your financial past, but you can improve your credit score’s future.


Here’s how to boost your credit and improve your score over time:

  • Pay bills on time — A single late bill may not leave a huge mark on your credit score, but lots of little dings will start to add up over time. Rather than waiting to pay your debts at the last minute, try paying them off at least one day in advance. You may want to consider a direct payment system that automatically takes care of bills.

  • Limit your spending — Credit utilisation ratios calculate how much you can spend versus how much you have spent. For example, if you have a credit limit of $5,000 and spend $1,000, your ratio is 20% — a terrific rule of thumb. If you spend $2,000 or even $3,000 of your limit, your utilisation percentage will be 40% to 60%. Try to keep your credit utilisation to around 30% or less.

  • Consolidate debt —Paying down debt is a great way to free up your credit utilisation and appear more trustworthy to lenders. If your bills don’t exceed 50% of your monthly gross income, and you know you can pay off your debts in five years or less, a debt consolidation loan may be the best option for you. This type of personal loan rolls all your debt into one manageable payment.

Improve your credit score with some help from Salt&Lime

At Salt&Lime, we’ve helped thousands of Australians all over the country boost their credit scores with debt consolidation loans. Our Zesty Loan puts financial opportunities back on the table by helping you pay down outstanding debts, accompanied by competitive interest rates, same-day funding, and no fees.


Our customers can’t stop raving about their newfound financial freedom — or the credit-boosting power our consolidation loans provide.


It’s time to take back control of your credit. Explore your eligibility for a debt consolidation loan, or get your questions answered by chatting with one of our representatives. We look forward to getting you started on a journey to better credit.

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