What Is A Good Credit Score & How You Can 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. A credit score 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, which will save you money.
Most credit scores are between 300 and 850, with a score of 500 or more considered good. Your credit 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 credit score could vary from country to country. In Australia, the two main credit reporting agencies are Experian and Equifax .
Credit file, credit score and 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
A 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 score 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:
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Personal information
Such as your name and addresses, date of birth and age of your credit file (this would be the first date you applied for a loan)
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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.
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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
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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 credit score. These include:
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Payment history
Have you paid your bills on time? Have you defaulted on a loan, and if so, how many times?
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Amounts owed
The total amount of credit that you currently have and the balances of those accounts.
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Types of credit
Having multiple credit cards and loans from unreputable lenders will affect your score differently than having a car loan or house loan through a bank
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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
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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 access your credit score
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 and provider that asks you to pay or asks for your credit card details
Here are our top trustworthy picks:
How To Improve Your Credit Score?
If your credit history is not 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, paying off debt and taking advantage. Here are a few recommendations by Experian:
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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 scores.
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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.
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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.
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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 utilization ratio. Owing the same amount but having fewer open accounts may lower your credit scores.
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Don’t Apply for Too Much New Credit, Resulting in Multiple Enquiries
Too many hard enquiries can negatively impact your score, though this effect will fade over time. Hard enquiries 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
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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.
For more information check out our article on how to fix your bad credit rating
Another great idea is to consolidate with a fast cash loan from us
This video from finder is a nice little summary of credit scores in Australia
