Your credit score is an important part of your financial profile. It reflects how well you’ve managed your debts in the past, including credit cards, personal loans, and other forms of credit.
It might sound daunting, but as well as assessing your financial responsibility, credit scores also offer a great way to stay on track and in control of your finances, here’s how.
A credit score or credit rating is used to determine the level of risk that you, the borrower, pose to a lender, like a bank. When considering whether to lend you money – for a personal loan, a home loan or via a credit card account, for example - financial institutions and other organisations want to know if you’re financially responsible. They determine this by looking at your credit score.
Your credit score is a number that is calculated based on your financial history. In Australia, your credit score will be a number between zero and 1200, depending on which credit reporting agency you use. The higher the score, the less risky you’re considered, and the more likely you are to get credit.
If you’re rated as low risk, you have a higher chance of your loan or credit being approved, and you might be able to borrow a larger amount of money. On the other hand, a lower score may impact your ability to get credit or a loan.
Your credit score is calculated using your credit report, which is a file of your financial history.
In Australia, there are three main credit reporting agencies: Equifax, Experian or illion. Each credit reporting agency uses slightly different methods to calculate your credit reports and score, but five fundamental factors that typically affect your credit score are:
You can contact any of the credit reporting agencies Equifax, Experian or illion to receive a free credit score check, or you can also use a third-party service such as Finder or Canstar to receive a free credit report.
You can get a copy of your credit report and score every three months free of charge, and your report includes your credit rating. This is the band in which your credit score sits – low, fair, good, very good and excellent.
It’s recommended you check your credit report every year to make sure it’s accurate, especially if you’re planning on applying for credit.
Once you receive your credit report, be sure to review it for accuracy. Check your personal details are correct and all loans and debts listed are yours.
If you uncover wrong or out-of-date information, unfamiliar accounts, or mistaken late payments, contact the credit reporting agency and ask them to fix the mistakes. If you discover loans or debts that you know nothing about, you may have been a victim of fraud, a data breach or identity theft.
There are several steps you could take to improve your credit score and credit rating over time. These include:
It’s also important to know how long certain details stay on your credit report:
Your credit score is crucial when applying for new credit as it influences the decisions credit providers make on whether to approve your application, and the amount they are willing to lend.
Your credit report and score are vital to your financial health, so it’s important to understand how your score is calculated and to regularly check it for accuracy.
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This information is general in nature and has been prepared without taking your personal objectives, circumstances and needs and into account. You should consider the appropriateness of the information to your own circumstances and, if necessary, seek appropriate professional advice.
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