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Understanding Your Credit Score

Updated: Jun 13

What is it?

Your credit score is a numerical representation of your financial information. It provides an immediate indication of your ability to manage your finances, and assists banks and lenders decide whether to accept your loan application, as well as the particulars of the loan.

Credit scores are calculated based on the information available in your credit report at the time the request is made.

Where can I find my Credit Score?

If you have ever applied for a loan or credit card, your financial details would have been subjected to a credit report, which includes a credit score. It is a good idea to request a copy of your credit score at least once a year. It can usually be accessed online within a couple of days, although since different institutions will hold different information as to your credit score, you may need to make more than one request.

In Australia, Equifax, Experiean and Illion are the three major credit reporting agencies and each can provide free credit scores and reports under certain conditions. Please be aware that some online credit score providers will collect personal information for marketing purposes.

What can impact my Credit Score?

Your credit score is a number between zero and 1000, or zero and 1200, depending on the reporting agency which calculated the score. It is based on the information contained in your credit report, including amounts borrowed, applications made, and records of loan repayments. The scores are arranged into five bands (841-1200 Excellent, 756-840 Very Good, 666-755 Good, 506-665 Average, 0-505 Below Average) which gives an indication of your trustworthiness as a borrower.

NB: Applying for multiple loans, or ‘shopping around’ and applying for loans with multiple lenders, can negatively impact your credit score. Since any loan application and it’s outcome will be recorded in your credit report, lenders in the future might use this information as evidence of your reliability.

Importantly, the type of credit provider applied to will also impact your credit score. For example, lenders offering payday loans and other non-traditional loans are considered riskier than those offered by banks and credit unions.

How can I fix my Credit Score?

Your credit score is based on the information available when it is calculated, which means it will shift with any new positive or negative changes in your financial behaviour. In addition, things like minor defaults will ‘drop off’ your credit report after a certain amount of time, so it is worth staying on top of your finances with these simple credit-score improving tips:

Pay your bills on time – Scheduling direct debit transfers and calendar reminders can assist if you’re time poor or tend to regularly forget bills. Make sure you notify your lenders of any changes to personal details so bills are sent to the right address.

Do your research – As discussed above, multiple loan applications with multiple lenders will be recorded on your credit report and can negatively impact your credit score. Doing your homework as to the type of loan product required and the most appropriate lender will avoid issues posed by multiple applications.

Contact your lender – If you are having difficulty repaying your loan, speak to your lender to see if they can assist you in meeting payments.

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