Credit scores & what yours says about you

If you’ve never requested a copy of your credit file, now is a great time to do so and we’re going to tell you why!

In this article we’re going to look at Australia’s leading credit bureaus, discuss credit files and scores in detail and give you our top tips to keep your credit score high.

Credit scores are not only important when looking to take out a mortgage or personal loan. They can also be important when phone and other utility companies run checks to ensure we can afford the services we’re looking to apply for.

A good credit rating simply indicated that you have a healthy amount of credit and that you are a reliable borrower who keeps up with the required loan repayments.

A poor credit score is the exact opposite and indicates that you either lack a credit history or have missed payments or even defaulted on loans and other commitments.

Australia’s leading credit bureaus

#1 Equifax

As the largest credit reporting agency in Australia, chances are you’ve heard or have dealt with Equifax at one point or another. Equifax stores credit information for both individuals and businesses.

#2 Experian

The second largest credit reporting agency in the county is Experian and they also offers a free annual credit report to individuals and has quite a detailed explanation on what credit score means, how they are worked out and what to do to improve them on their website.

#3 illion

The third largest credit reporting agency in Australia, illion provides a free copy of your credit file once every 12 months or, sooner in the case of fraud and errors for free.

What is a credit score & what yours says about you

A credit score is simply a numeric value assigned to an individual or business by a credit bureau and exactly what it means will depend not only on your individual score but also on which credit bureau has issued the score. It essentially gives a lender an idea of how well you manage your money and debt and whether you’re a low risk or high risk borrower.

Information that is gathered and retained by reporting agencies can be kept on your credit file for a period of up to 7 years in the case of serious defaults and infringements. If you have a judgement against you or have had overdue accounts, sadly these are likely to remain on your file for 5 years.

#1 Equifax credit scores

Equifax credit scores range between 0 and 1200 and can classify your credit rating from below average to excellent.

0 to 509 – a score than ranges between these figures will indicate that a negative even is likely to be recorded on your file within the next year. If you are in this range you have bad credit and are part of Australia’s bottom 20% of credit active people.

510 to 621 - a score in this range puts you among the 21% to 40% of the bottom of credit active Australians. This means that a negative credit event is likely to occur in the next year but you still have “average” credit.

622 to 725 – if your score ranges in between these two figures you have a good credit score and lenders will conclude that a negative credit event is “less likely” to occur than for the 40% of people in the categories below.

726 to 832 – this and the category above this is where you want to be. In this category lenders view you as a borrower that is likely to stick to repayments and you are within the top 40% of credit active Australians.

833 to 1200 – this is the top 20% of all credit active Australians and indicates that a negative event is unlikely to happen within the next year and this is where you want to be to benefit from leading interest rates and offers on credit.

#2 Experian credit scores

Experian used credit scores that ranges from 0 to 1,000 and naturally the higher the score the less of a risk you will be viewed as positing to lenders.

0 to 549 – This is considered bad credit and is below average. If your credit lies between these figures you either have a lack of credit history or have negative events listed on your report.

550 to 624 – Any score between these two figures is considered to be a fair credit rating and in such a case you should certainly try to improve your credit.

625 to 699 – A credit score ranging between these figure indicates that you have a good credit score and are about average. There are things that you can and should consider doing to improve your credit and get it into the two tiers above this.

700 to 700 – A credit score in this range indicated that you are sitting above the average Australian and have a very good credit rating.

800 to 1000 – This is where you should ideally have your credit score sitting. A credit score of above 800 means that you have excellent credit.

#3 illion credit scores

Lastly we have illion which is the third of Australia’s top 3 credit reporting agencies. illion uses a score from 0 to 1,000.

0 to 299 – If your credit score lies between these two figures, you have poor credit and may have negative events on your credit report.

300 to 499 – A credit score in this range is still considered to be low and you must put in the effort to increase the score through budgeting and effective debt repayment.

500 to 699 – This is considered a good credit score but may mean you simply lack any credit history to date.

700 to 799 – This is an average credit score and indicates that you generally repay your loans and bills on time but that there are a few negative items that you can still improve on.

800 to 1,000 – This is where you ideally want your illion credit score to be and indicates that you are above average and unlikely to default on credit agreements.

The Tasmanian Collection Service also collects and stores credit information but is one of the smaller and lesser used agencies so we will not delve into what their credit scoring system looks like and means.

Improving your credit score

Now that you know exactly what your credit score says about you, it’s time to look at ways to improve your credit rating and optimise your financial management practices.

Here are a few things you can do to maintain and boost your credit score:

• Always request and review a copy of your credit file once a year, preferably during tax season so it becomes a habit.
• Check for errors on the part of the credit reporting agency, lenders and service providers but also remember to keep an eye out for fraud.
• Pay all of you bills, credit cards and loans on time. Skipping loan repayments is a big no no and will have you dropping to a below average credit score faster than you could have ever imaged.
• Do not make multiple loan applications to compare deals, lenders will conduct credit searches and these will be recorded on your file, rather compare loans online or use a broker to find better deals.
• Do not cancel multiple credit cards or loans at once as this will drop your score significantly.
• Do not use all the credit available to you and consider paying more than the required minimum on credit cards and on you mortgage where possible.