IN THIS GUIDE
Everyone should know their credit score. Not only so you can ‘see’ what banks can see about you but also to better understand why they gave you a certain amount, the specific terms, and in some cases, their reasons for rejecting a request.
What is a credit score?
A credit score is a number that represents the sum of all credit-related activities and is based on your credit report. In Australia, three main agencies create credit reports: Equifax, Experian, and Illion.
Credit scores inform many aspects of life — especially the big expenses, like car, house, and business loans — and it’s how lenders determine your borrowing capacity. It’s a smart financial practice to complete a credit check at least once a year.
Credit scores fall within 0-1,000 or 0-1,200, depending on the reporting body. The higher the score, the stronger your borrowing capacity. The lower the score, the riskier you are to lenders, which makes borrowing money difficult, and if it’s approved, it’s with a higher interest rate.
How a “good” credit score and rating is defined
Credit ratings are the ‘bands’, or ranges, that a credit score falls under, such as average, good, very good, and excellent. So, appropriately, a good credit score is a score with a “good” credit rating.
Australia’s three main agencies use the following bands to classify credit ratings:
It’s worth noting that each agency uses slightly different language to describe these ratings.
- Equifax (scores 0-1,200): Below average, average, good, very good, and excellent.
- Experian (scores 0-1,000): Below average, fair, good, very good, and excellent.
- illion (scores 0-1,000): Low score, room for improvement, good, great, and excellent.
What a good credit score means to lenders
A good credit score tells lenders you use credit responsibly. It’s a marker of good faith. A good credit score means you have options. Because you’ve proven you can pay off credit, the banks and providers are more likely to offer more with lower interest rates. You’ll have access to better offers with lower fees.
A healthy credit score gives you buying power as a consumer, especially with the big life purchases that have the most impact on your finances.
What is the average credit score in Australia?
The average credit score in Australia is 695, but this number has a lot of variation within different age groups.
So, while it’s good to understand credit score ranges as general guidelines, it’s more important to know where you sit on the credit score spectrum based on your age — much like it’s helpful comparing superannuation contributions to age and years left in the workforce.
Average credit scores by age in Australia
|Age group||Average credit score|
The data tells a story: credit scores trend upwards with age. Statistically, this makes sense, as younger people have a shorter credit history and are less likely to have mortgages. Both lengths of credit and a track record of repayments improve credit scores.
How are credit scores determined?
Each credit agency uses a slightly different formula to calculate a credit score and does not share the full details of the algorithms. This variation means your credit score may differ from one agency to the next, and you may not know why one is higher than another.
However, the information in your credit report always determines your credit score. That information includes the amount you’ve borrowed, the number and frequency of credit applications, and whether you pay monthly bills on time.
What affects your credit score?
Ultimately, the two things that matter most to your credit score are paying bills on time and how much you owe. These factors that affect your score most are reflected in the following categories.
This category takes into account the details of each credit product you hold, such as
- The type of card or loan
- Credit limit
- Credit provider
- Account opening and closing dates.
The length of your credit and the mix of products are also important metrics.
Record of payments
The repayment amount, key dates, frequency, and how often you paid (or failed to) when the repayment was due all factor into the credit score. Late payments that exceed 14 days are listed on a credit report.
How much of the credit you use up is also given weight in your score. Aim to use no more than 30% of your credit limit.
Defaults and debt arrangements
Failing to pay a provider you have an obligation to is referred to as a default, which can damage a credit score. Defaults stay on your credit report for approximately five years.
Be wary of the number of lines of credit you’ve registered (or are a guarantor for). If you’re applying for multiple credit cards as a strategy to boost frequent flyer points, be cautious and stay on top of your credit checks.
What doesn’t affect your credit score?
Knowing what doesn’t play into the credit score calculation is important. Your score won’t consider your age, where you live, your relationship status, how much you earn, and your savings, superannuation, or investments. A credit reporting agency only looks into patterns and trends relating to your credit history and profile.
Expect credit score changes
Your credit score isn’t forever, and your credit information remains on your report for at least a couple of years. This is why it’s crucial to regularly request a credit report, so you can track your progress — especially if you’re planning to get a mortgage or buy a car in the near future. What you do now will affect your borrowing abilities.
Think of credit checks like annual visits to your doctor. It’s essential for good health. Getting a full credit ‘check-up’ will help you see any blind spots you’re missing, reveal any errors, and empower better decision-making about your finances and future.
When it comes to financial health, clarity is priceless. Your credit report exists, whether you know your score or not. By getting in the habit of tracking your credit reputation, you’ll take control of one of the most important parts of your financial life.
As interest rates rise and inflation tightens purchasing power, a good credit score isn’t something people can afford to ignore.