What is a credit score? 

If you’re looking to borrow a large sum of money, you may have heard the term “credit score” come up on more than one occasion, and rightly so. Your credit score is one of the key factors in determining how much or little you can potentially borrow from a financial institution, therefore it’s important you know the fundamentals.

A credit score or “credit rating” is a numerical rating given to an individual that represents to banking bodies how trustworthy that individual is, i.e how likely or unlikely they are to make their repayments. If your score is high, this indicates that you are more “trustworthy” whilst if your credit score low, this indicates that you are less likely to make your repayments. 

In Australia, credit scores are graded between 0 - 1,200, with 0 being the lowest and 1,200 being the highest. The three main credit reporting agencies within Australia are Equifax, Experian and Illion, each of which have different grading systems within the 1 -1,200 point range (please see the diagram below). 

 

 

 

Below Average

Average

Good

Very Good

Excellent

Equifax score range

0-505

506-665

666-755

756-840

841-1,200

Source: Equifax

 

 

Below Average 

Fair

Good

Very Good 

Excellent

Experian score range

0-549

550-624

625-699

700-799

800-1,000

Source: Experian

 

 

Zero score

A low score

Room to improve

Average

Great

Excellent

Illion score range

0

1-299

300-499

500-699

700-799

800-1,000

Source: Illion, Credit Simple

 

You should note that when your credit score is being calculated, both negative and positive information can be included to determine your rating, this is known as “comprehensive credit reporting”. 

To check your credit score you may be able to receive one free from your bank or credit card company. If not, don’t worry, there are a number of financial sites which offer free online audits. For your convenience, we’ve linked some online resources at the end of this article!  

How do I improve my credit score? 

  1. Pay your bills on time: This is one of the key areas lenders look at when calculating your score. They will be extremely interested in how reliable you are in paying your bills, and whether you pay them on time. 

  2. If you change your living location, tell your lenders: If your bills are sent to the wrong address, it puts you at higher risk of missing a payment or making it late. To limit the risk of this happening make sure you inform your lenders of any address changes prior to your move. 

  3. Try and limit your credit commitments: If you are seen to be applying for multiple loans at any given time, this may be seen as a warning sign to lenders, and thus create negative scoring against your overall rating. 

  4. When in trouble, ask for help:  Don’t let your lending and interest spiral out of control. Get in contact with your lenders to see how they can help you manage your loans so as to be more manageable. 

  5. Don’t close unused credit cards: Keeping your credit cards open, even if unused may be a smart strategy to increase your credit score. Why is this this the case? When reviewing your loan history, if you close your accounts it may impact your credit utilisation ratio. For example, if you owe $10,000 across two accounts versus one, owing the same amount of money but having fewer accounts may lower your credit score. However, if you do have to pay fees to keep accounts open this might not financially make sense, so review this point on a case by case basis. 

 

Check your credit score: 

https://www.illion.com.au/#illion-for-individuals

https://www.equifax.com.au/personal/products/credit-and-identity-products

https://www.experian.com.au/order-credit-report/

https://www.clearscore.com/au/?gclid=Cj0KCQiArvX_BRCyARIsAKsnTxOHUSYJ65yV-npGNHR7FewgmyCGRK4rHHumyHIprj6wCfei-q7gNSIaAo1REALw_wcB 

https://www.nerdwallet.com/l/free-credit-score