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What is a credit score and how does it work in Australia?
In Australia, credit scores indicate your creditworthiness. Maintaining a good credit score can directly impact your ability to borrow money and make major financial decisions. Learn how credit score works in Australia, how it’s calculated, how you can check yours, and how to fix it.
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What is a credit score?
A credit score is a ranking system that rates your creditworthiness based on your credit history. Lenders use credit scores, along with other financial information, to decide whether you’re eligible for a loan. The credit score also impacts the applicable interest rate and the credit limits. In Australia, three credit reporting agencies provide credit ratings—Illion, Equifax and Experian.
How does credit score work in Australia?
Whenever you apply for any loan, like a home loan, personal loan, credit card, etc, the lender will check your credit score to determine if they can approve your application.
Your credit score can range between 0 and 1200 and is typically graded in five different categories: excellent, very good, good, average, and below average. The higher your score, the better interest rates you’ll likely get for your loans.
You can refer to the following table to get an idea of how different credit rating agencies categorise credit scores:
| Credit Score Range | Illion¹ | Equifax² | Experian³ |
| Excellent | 800-1000 | 833-1200 | 800-1000 |
| Very good | 700-799 | 726-832 | 700-799 |
| Average | 500-699 | 622-725 | 625-699 |
| Fair | 300-499 | 510-621 | 550-624 |
| Low | 0-299 | 0-509 | 0-549 |
How is credit score calculated and what factors impact it?
Your credit score is based on the personal and financial information mentioned in your credit report. Every credit rating agency uses different algorithms to calculate credit scores based on your report. The factors that are generally considered in a credit report are:
- Number of accounts
- Details of past credit or loan
- Length of credit history
- Details of credit enquiries
- Repayment history
- Information regarding court judgments, bankruptcy, or insolvency
- Negative entries
Each of these factors carries a different weightage. Since credit rating agencies collect different information for calculating credit scores, you’ll have three different scores for the three agencies.⁴ Credit rating agencies in some other countries use established systems to ascertain credit scores. The agencies in the U.S. use Fair Isaac Corporation (FICO) scores.
When you apply for a loan with a lender, they send your information to credit rating agencies with your consent. The credit rating agencies then use their unique and secret formulas to come up with your credit score. The lenders use this number to determine the risk involved with approving your loan application.
What credit reporting agencies are there in Australia?
In Australia, there are three credit rating agencies—Experian, Equifax, and Illion. These agencies gather your financial details to calculate your credit scores. They use different sets of information and calculations to determine your credit score meaning it’s highly likely you’ll have three separate credit scores instead of just one.
How to check credit scores in Australia?
If you’ve ever applied for a loan, there will be a credit report on you. The credit rating agencies are required to make your credit report accessible to you for free every three months. Your credit report contains your credit score along with other personal and financial information. To access your credit report, you can reach out to the agencies directly at:⁵
- Experian – 1300 783 684
- lllion – 132 333
- Equifax – 138 332
Since the reports prepared by each agency contain different information, it is a good idea to check multiple reports to understand your financial standing. It is generally advisable to check your credit score at least once every year.
You can also get your credit score for free from an online credit score provider. Here are the steps you can follow:
- Request your credit score from a credit reporting agency or online credit score provider.
- Provide the required personal information such as your name, date of birth, current address, and ID proof.⁶
- Wait for your credit score to be delivered.
- If you request your credit report from a credit agency, it may take up to 10 days to receive it by email. Online credit score providers usually deliver your scores instantly or within a few minutes.
How to improve your credit score?
If you want to apply for a loan, such as a mortgage, personal loan, home loan, credit card, etc., the approval of your application largely depends on your credit score. If you have a high credit score, your chances of getting a loan are high. Credit scores can determine the rate of interest you’ll pay on these loans. You can typically get a better interest rate when you have a high credit score.
So, how to fix credit scores in Australia? Here are a few things you can do:
- Get a credit card with a higher limit.
- Pay all your bills on time to avoid late payments.
- Aim to keep your credit balance below 30% of your credit limit.
- Avoid applying for multiple new credit accounts in a short amount of time.
- Add to your credit mix to build your credit history.
- Review your credit reports regular to check for any errors or inaccuracies.
By understanding and managing your credit score effectively, you can improve your financial health and increase your chances of getting loans and credit cards on favourable terms.
Fix your credit report
There can be situations when your credit score is low because of an error in your credit report. These errors can be due to a mistake by the credit rating agencies or the credit provider. If the error was made by one of the agencies, you can get in touch with them and ask them to fix it for free.
If you notice that the credit provider made a mistake by reporting wrong information, you should reach out to them and request them to fix the error. If they agree, they can then ask the credit rating agency to amend your report. In case they don’t agree with you, you can contact the Australian Financial Complaints Authority to apply for independent dispute resolution.⁷
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Disclaimer:
IPF Digital Australia Pty Ltd, trading as Credit24, ABN 59 130 894 405. Australian Credit Licence 422839. The information in this article is of general nature and does not take into consideration your objectives, financial situation or needs. Lending criteria, fees and charges apply. For more information about our products, eligibility criteria and terms and conditions, please visit www.credit24.com.au.
Sources:
- Illion Credit Check, About credit scores
- Equifax, What Is a Good Credit Score?
- Experian, Experian Credit Scores
- Tippla, Understanding The Differences: Credit Scores in Australia vs The US
- Moneysmart.gov.au, Credit scores and credit reports
- Commbank, How to understand & check your credit score
- Moneysmart.gov.au, Credit repair
