How to check your credit score

Your credit score provides banks and lenders with an overview of your reliability as a borrower. If you have a good credit score, you’re seen as a lower risk, which can lead to better terms for loans or credit.

But how do you know if your credit score is good? And if it’s low, how can you improve it? Let’s explore these questions in the text below.

What is a credit score?

Lenders, such as banks and credit card providers, are required to share information about your financial behaviour with credit reporting agencies. This information is compiled into a credit report that records your history as a borrower.

Your credit score is based on this data and reflects details such as the amount you’ve borrowed and whether you’ve repaid on time, along with information about new credit applications.

In Australia, there are three main credit agencies: Equifax, Experian, and Illion. At these agencies, you can usually request your credit score for free once a year, or in some cases, every three months.

Each agency uses numerical scales, with some variations, ranging from 0 to 1,000 or 0 to 1,200. Higher scores are preferable, as they indicate a lower risk for lenders, which can result in better credit offers.

Credit score

A credit score reflects the level of trust assigned to you by credit agencies. The higher your score, the more reliable you are seen in terms of repaying loans or debts on time, which increases your chances of securing credit under favourable conditions.

Credit report

A credit report is a summary of your financial history, used to calculate your credit score. This document contains information such as credit enquiries, bill payments, defaults, and court judgments. Lenders use it to assess the risk of offering you credit.

Credit score in Australia

Overview of credit score

As a reminder, the Experian credit score reflects how credit providers perceive your financial history. The higher the score, the healthier your credit report appears.

How the score is calculated

The score is calculated using an algorithm that takes into account various factors, including:

• Credit accounts: The type and number of open accounts.
• Credit limits: The total amount of credit available on your accounts.
• Payment history: The regularity and timeliness of your payments.

So, what is a good credit score?

What is considered a good credit score can vary, but generally, the higher the score, the better. Having a score above the average for your age group, for example, increases the likelihood that lenders will approve your credit or loan application.

Additionally, a good score can influence the amount of money you’re loaned and the interest rates charged on credit terms.

And what is a bad credit score?

A low score can make it harder to obtain credit or may result in higher interest rates. Generally, low scores indicate that the borrower is seen as a higher risk by lenders.

What factors affect your credit score?

Various financial behaviours and factors can impact or harm your credit score. These include:

• Your payment history, whether you are a good or bad payer.
• The number of credit applications you’ve made.
• Defaults, bankruptcies, court judgments, or accounts in collections.
• Personal details, such as your age and the length of time at your current job or address.
• The length of your credit history, which usually begins with your first credit application.

Positive information, such as on-time loan payments, can also be recorded, helping improve your credit evaluation.

Score changes over time

Your score can adjust based on:

• Financial institution data updates.
• Removal of outdated information, with data expiring after a legal period.
• Updates made to keep scores relevant.

How can you improve your credit score?

Your credit score is not permanent and can fluctuate over time based on new information added to your file. Negative behaviours, such as defaults, will eventually drop off your report after a certain period, improving your score. To increase your score, consider the following practices:

• Pay your bills on time: Timeliness is crucial.
• Check your report regularly: Monitor for changes and corrections, but avoid excessive checking, as too many inquiries can incur costs.
• Limit credit applications: Avoid making multiple applications in a short period.
• Avoid defaults or bankruptcy agreements: Maintain a healthy financial history.

Proactively managing your credit score is essential for ensuring a good financial record and facilitating credit access when needed. Taking these steps and regularly monitoring your report can help identify errors or negative entries, as well as provide a path for improving your score over time.

In summary, let’s recap…

Creditors use credit scores to decide whether to grant credit or loans. Understanding your score can help you negotiate better terms or understand credit rejections. Your score is based on personal and financial data from your credit report.

If you are having difficulty repaying loans, it’s important to communicate with your creditor to avoid bigger issues. Additionally, if you’ve applied for credit, there is a credit report available. The credit score also includes a rating that ranges from low to excellent. Credit agencies can provide your score for free, and there are also online score providers that calculate this score using data from credit agencies. Avoid companies that charge for the service or request your credit card details.

If you’ve been a victim of a data breach, the Office of the Australian Information Commissioner offers guidance on how to deal with the situation, including requesting a temporary ban on your report.

The credit score is calculated based on your financial history. Higher scores indicate lower risk for creditors, enabling better credit terms, while lower scores can make accessing credit more difficult. The credit report contains information about your credit history, credit products you hold, and payment history. Creditors use this information to make lending decisions.

When accessing your credit report, check that all information is correct, including loans and personal data like your name and date of birth. If there are errors, contact the credit agency to correct them for free. Companies that charge to remove negative information can only remove errors, which can be done at no cost directly with the agency.