What Is A Good Credit Score & How Can You Improve It?
Your credit score is one of the most important factors in obtaining a loan, and yet many Australians don’t know what their credit score is. In fact, most Australians have probably asked at one point or another, “what is a good credit score?“. If you want to learn more about the types of credit scoring ranges, and how a debt consolidation loan could help you improve your score, read on.
Overview:
- What is a credit score?
- What is a good credit score in Australia?
- How is a credit score calculated?
- How to do a credit score check?
- 6 Ways to improve credit score ratings
What is a credit score?
It is a numeric rating that indicates how credit-worthy you are. It considers your financial history and helps to determine your borrowing power. The higher the score, the better your credit rating is, and the more likely you are to qualify for loans and credit cards at the most favourable terms—saving you money in the long run.
What is a good credit score in Australia?
Most credit scores are between 300 and 850, with a score of 500 or more considered good. Your score is one of the most important pieces of information that lenders look at when deciding whether or not to lend you money.
As different countries have different criteria for lending, your score could vary from country to country. In Australia, the two main credit reporting agencies are Experian and Equifax.
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What is a good credit score to buy a house?
Like any other loan, the higher the credit score, the better chances a borrower has in securing a loan at a competitive rate. It is possible to get approved for a home loan even with a bad credit score. There are a number of specialist lenders in Australia that help borrowers who can’t get approved from mainstream lenders because of their bad credit. However, these specialist lenders tend to charge a higher interest rate to account for the higher risk, based on the borrower’s default history.
Credit file, credit score & credit report: what’s the difference?
- A credit score is a numerical value used to estimate how credit-worthy you are. This is calculated using the information in your credit file.
- A credit file is opened when you first apply for a line of credit and will continually accumulate information about your credit history.
- Your credit report is a summary of your financial reliability generated by lenders when you apply for a loan. It will contain information up to ten years old.
What is in a credit report?
Your credit report contains a summary of your financial history, and your credit rating is a reflection of how reputable that history is.
Myfico has a great article detailing the four categories of information in a credit report. We’ve made it easy by summarising them here:
1. Personal information
Your name and addresses, date of birth and the age of your credit file (this would be the first date you applied for a loan (including small personal loans).
2. Credit accounts
Any lines of credit that you have had or currently have, including the type of credit account (credit card, mortgage etc.). This will include the credit amount, account balances and payment history.
3. Credit enquiries
The enquiries section contains a list of everyone who has accessed your credit report in the last two years. Too many enquiries can be an indication of a high risk borrower and will affect your credit score.
4. Defaults and collections
This will contain information on any bankruptcies, or overdue debt that has been sent to collection agencies.
How is a credit score calculated?
Credit reporting companies use mathematical models to take several factors into account as they calculate your rating. These include:
Payment history
- Have you paid your bills on time? Have you defaulted on a loan, and if so, how many times?
Amounts owed
- The total amount of credit that you currently have and the balances of those accounts.
Types of credit
- Having multiple credit cards and loans from disreputable lenders will affect your rating differently than having a car loan or house loan through a bank
Credit enquiries
- Too many enquiries in a short time, and from multiple lenders, will negatively affect your credit score, whether they were approved or not.
Length of credit history
- How long your credit file has been open. For example, if you are 45 years old and your credit file is only 2 years old this may affect your rating.
How to do a credit score check
If you are interested in improving your credit score, it’s a good idea to find out where you are right now, then build from there. As we mentioned before, there are two main reporting agencies for credit ratings in Australia: Experian and Equifax.
There are also a range of third party companies that will let you know your credit rating for free online. Just be sure to avoid any provider that asks you to pay or asks for your credit card details.
Here are our top trustworthy picks:
6 ways to improve credit score ratings
If after learning “what is a good credit score”, you’ve now realised your credit rating isn’t where you want it to be — you’re not alone. Improving your credit score takes time, but the sooner you address the issues that might be dragging them down, the faster your score will go up.
You can increase your scores by taking several steps, like establishing a track record of paying bills on time and paying off debt. Here are a few recommendations by Experian:
1. Pay your bills on time
You can positively influence this credit scoring factor by paying all your bills on time as agreed every month. Paying late or settling an account for less than what you originally agreed to pay can negatively affect credit ratings.
2. Pay off your debt
Easier said than done, but it is helpful to keep your debt down. This includes keeping balances low on credit cards and other revolving credit like Afterpay. To save money, you can also use a cash loan from Swoosh to consolidate your debt and pay it off with fewer fees.
3. Apply for new credit only as needed
Keep in mind that each loan application shows up on your credit report—even if you don’t end up taking out the loan. Avoid applying for loans in rapid succession.
4. Don’t close unused credit cards
Keeping unused credit cards open—as long as they’re not costing you money in annual fees—is a smart strategy, because closing an account may increase your credit utilisation ratio. Owing the same amount, but having fewer open accounts may lower your credit scores.
5. Don’t apply for too much new credit
Too many enquiries can negatively impact your score, though this effect will fade over time. Hard inquiries remain on your credit report for two years. If you are unsure, check out our handy guide: how to know if you are ready to reapply for a cash loan.
6. Dispute any inaccuracies on your credit reports
Incorrect information on your credit reports could drag your scores down. Verify that the accounts listed on your reports are correct.
Are credit cards good for credit rating?
Yes, a credit card could help your credit rating in the long run, especially if you use it to your advantage to make more repayments on time. However, while applying for a credit card may not hurt your score too much, applying for multiple cards in a short period of time will.
So, now you know the answer to “what is a good credit score”! For more information check out our article on how to fix your bad credit rating. You can also watch this video from finder for a nice little summary of credit scores in Australia.
And if you’ve checked your credit and realised it’s not where you want it to be, you can still apply for a quick online loan with Swoosh. Learn more about our bad credit loans, by speaking to our friendly customer service team!
