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Check both of your credit scores

It’s true! You have more than one credit score. These scores are usually different. That’s why we think it’s important to be aware of both these scores – Experian and Equifax. These are the two biggest credit score companies in the world. 

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What’s considered a good credit score?

* The credit score scale above is for Experian. 

What is a credit score?

Your credit score is a number that indicates how reliable you are as a borrower. Banks and lenders use your credit scores when deciding whether to lend you money or approve your loan application. Credit providers know your credit scores, so should you. 

How can I improve my credit scores?

Your credit scores cannot be improved overnight – you need to work towards improving them. RateCity can provide you with up to date information and smart tips to help you with this. If you haven’t already, the first step is to check your credit scores. 

Understanding credit files and credit scores

Your credit score is a numeric measure, usually between 0 and 1000, that tells banks, credit card companies, and loan agencies what your history has been like with paying your bills and debts.

Credit scores are a good indicator of whether lenders can trust you to repay a loan or debt in the future, and base your score on your credit history or experience of repaying loans or settling debts. Australians can typically check their credit score online for free by providing a few personal details. To understand how your credit rating is worked out, you may be able to access your credit report, which can also tell you about the incidents affecting your score. 

Credit rating bureaus categorise credit scores in five tiers ranging from “below average” to “excellent”. Your credit rating can fall into any of these tiers based on the positive and negative incidents affecting it. Positive incidents include borrowing money less often and repaying your credit card debt, while negative events include paying only the minimum amount due on your credit card or defaulting on a loan payment. Other factors that affect your credit score may include the duration you have occupied your current residence, the length of time you have been employed, and the depth of your credit history. 

If you register a series of positive incidents, credit rating bureaus are likely to view your credit profile more favourably, resulting in a higher credit rating overall. Lenders reviewing your loan or credit applications may consider you a less risky customer if you have a high credit score, and your credit history is sufficiently rich yet without controversial events. On the other hand, a low credit score reflects more negative incidents and may make it difficult for you to be seen in a favourable light, affecting your loan and credit applications. From a lender’s perspective, an average or below-average credit rating reflects your likelihood to incur further debt. Checking your credit score, however, isn’t considered either a positive or a negative event. 

While your credit score indicates how successfully you manage debt, it can change over time. This means you may want to take actions to remedy a bad credit rating, one of the reasons to consider checking your credit score periodically.

Sometimes, a low credit score may not be your fault at all, as incorrectly added personal details or a misreported debt can affect your credit rating. Requesting a credit rating bureau to rectify such errors can help fix your credit score, though credit scores can vary between the credit reporting bureaus.

A genuinely low credit score isn’t the end of the world, but knowing why can help you find out how to improve your credit rating, much like how knowing if you don't have a credit score can help put you on the right path to getting one

How is your credit score calculated?

In Australia, comprehensive credit reporting requirements oblige banks and other credit lenders to report your financial status and activities to credit rating bureaus. Since 2014, these reports include both positive changes to your financial profile as well as negative incidents, whereas previously, it was mostly negative. 

Credit rating bureaus then use this information to build your credit report and compute your credit rating. Note that there must be information available about you to have a credit score. Never borrowing money doesn’t automatically imply that your credit score is going to be high; as far as your lender is concerned, your borrowing behaviour is unknown if you’ve never taken on debt of any kind.

When calculating your credit score, credit rating bureaus may assess your bank and credit card accounts for any past issues, including those that may have caused you to open further accounts, often to determine why you did so. As such, the history and frequency of your recent credit transactions may also be examined to understand your financial profile. Again, too many instances of borrowing money can reflect uncertainty on your part in estimating how much money you need, which may make lenders feel you pose a higher risk. 

Another important factor in gauging your creditworthiness is your repayment history: lenders need to know the likelihood of you missing payment deadlines or being unable to pay the amount due within a reasonable time. If you own one or more credit cards, how often you pay only the minimum repayment can affect your credit score. Using a credit card with a moderate borrowing limit, not spending the full limit, and repaying the card debt entirely will likely improve your credit rating, while defaulting on the card or not making payments, even for brief periods, can have negative consequences. 

Your credit score can also be impacted by your utility and phone bills. Every bill of significant value that you need to pay periodically can affect your credit rating and can be included in your credit history. 

To get a direct understanding of how specific positive and negative incidents affect your credit rating, consider reaching out to any of the Australian credit reporting bureaus and access your credit report. You may then be able to use this information when applying for a loan to negotiate better terms. For instance, if your credit report reflects your history of making regular repayments, you may be able to convince your lender to offer you easier repayment options. However, just because you can successfully take on credit doesn’t mean you should go around on a borrowing spree, as a sudden spike in credit transactions may adversely affect your credit rating.

How credit scores impact your finances

A credit score signifies your trustworthiness as a borrower, based on your credit history. Your credit score is based on your credit history and debt - using details from your credit file.

Each credit reporting bureau has its own method for assigning credit scores. For example, Equifax, a popular consumer credit reporting agency in the United States that acquired VEDA in Australia, assigns a score between 0 and 1200.  This is known as the Equifax Score and is calculated after considering your credit history and related details.

Locally in Australia, Clearscore relies on the Experian system for working out credit scores, applying a score between 0 and 1000 to work out how your credit is rated.

Banks and creditors use your credit score when deciding whether to lend you money or approve your loan application. A good credit score establishes your reliability as a borrower.

RateCity's credit checking system uses both Equifax and Experian to provide a more detailed understanding of your credit history, and to help you understand your financial health more clearly. 

Are there any ways you can improve your credit score?

When you review your credit report, you should examine every aspect of it in detail, starting with your details. If any of your details, including your name and your driving license number, are recorded incorrectly, someone else’s financial transactions can get registered in your credit report. 

Consider checking the most recently recorded financial transactions to verify their accuracy. Explore whether the number of credit applications is mentioned correctly, or if there is a wrongly included debt marked against your name. An error-free credit report can be useful in understanding the impact of each credit transaction, and in gauging if you need to take steps to improve your credit score.

In case you need to fix your credit rating, one potentially positive move may be paying down any substantive accounts and reducing the number of credit accounts you have. The transactions already recorded in your credit report may guide you in identifying these accounts, or at least suggesting if you need to be more careful in applying for fresh credit. You can also check if you have simultaneously submitted loan applications to several lenders and if you have missed any payment deadlines to set yourself reminders to avoid doing so in the future.

Changing your credit history may not be possible, but you can certainly work on it with guidance. In Australia, there are several government agencies and community organisations that provide such counselling services for free. You can also discuss how to improve your credit score with an existing lender, especially if you are going through financial difficulties and struggling to keep up with repayments on time. If you feel stressed by being unable to make payments on time, you may face harassment from lenders, which can, in turn, affect your ability to take prudent financial decisions and further affect your credit history. 

However, be careful about approaching agencies that claim they can repair your credit history or clear all previously recorded negative transactions. Instead, consider approaching any of the credit reporting bureaus directly to access and understand your credit report. 

Remember that a credit score can be low for many reasons, such as a lack of financial history. Even if past negative transactions continue to be reported in your credit report, accumulating positive transactions can mitigate their impact. You may want to set up annual milestones to gauge if the steps you're taking are moving your credit score in the right direction. 

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Frequently asked questions

Do landlords check credit scores?

For landlords, credit score checks can tell if a potential tenant has a history of delayed or missed rent payments. Usually, a poor record of repayments is likely to result in a low credit score. Also, your credit history may include information from tenancy databases such as the number of times landlords have inquired about your credit score. 

If there are too many inquiries within a short time, landlords may conclude that you have had issues renting in the past.  However, there is no rule as to when landlords check your credit score. Some might check every time they receive a tenant’s application. In some cases, landlords may even rent out their property to tenants with a poor credit history if they can submit additional documents or sufficiently explain their situation and how they are trying to address it.

 What credit score do landlords look for?

Landlords may look for issues relating to repayment rather than a specific credit score, although a low credit score probably suggests that you’ve had repayment issues. In general, if your credit score is categorised good, very good, or excellent - which corresponds to an Equifax credit score range of 622 - 1,200, landlords may not scrutinise your credit history too closely.

Can I check my credit score without a driver's license?

In Australia, your driver’s license is the preferred identification document for credit reporting agencies. This means you may not be able to confirm your identity using another document, such as a proof-of-age card. You may have genuine reasons like concerns over identity theft for not wanting to provide your driver’s license number. Unfortunately, most credit bureaus won’t allow people to check their credit score without a driver’s license. 

If you don’t have a driver’s license, there’s a good chance you haven’t applied for credit in the past and don’t have a credit score at all. In case you are concerned about identity theft, credit reporting agencies can offer you paid packages that include insurance against identity theft. Such packages may also include monthly credit score checks or alerts whenever your score is updated.

Can a debt collector affect your credit score?

When a creditor is unable to contact you by phone or by sending you a formal notice in regards to outstanding debt, they will often outsource the job to a debt collector. The debt collector can try to reach you by phone, or they can attempt to contact you face to face. If they cannot get through to you by either method, they can only report back to the creditor but not directly report a payment default to the credit rating agency. So, can debt collectors affect your credit score? No, they cannot do so directly.

However, if you owe money, you have an obligation to return it or communicate your difficulty in doing so to the creditor as well as to any involved debt collector. If they cannot contact you, they can report a serious credit infringement against you, which may affect your credit score for many years. Creditors can also take the legal route, and a court judgment against you can also severely impact your credit score.

You should remember that debt collectors need to abide by specific rules and cannot harass you by repeatedly calling or visiting you, or by threatening to confiscate your possessions if you don’t pay up. Similarly, they cannot threaten to file a default against you, especially with a credit bureau.

Does borrowing money affect credit score?

Whether it’s through a home loan, a personal loan, or a credit card, borrowing money will affect your credit score. Taking on a home loan or a credit card may have a positive impact on your score, but too many loan applications can bring your credit score down.  

Every time you apply for credit, an inquiry is performed against your name. Too many inquiries can reflect negatively on your credit report, and if your loan application is rejected it will negatively impact your credit score.

How you handle your debt can also make a big difference. As long as you make timely payments you may be able to improve your credit score and overall creditworthiness. However, any missed or delayed payments will likely result in a negative impact on your credit score.

Does home loan pre-approval affect credit score?

Home loan pre-approval can give you a better idea of the amount you can spend when buying a property. It can also tell you about the steps you need to take to finalise your home loan and receiving the funds. Depending on how you approach a lender, pre-approval could include a credit inquiry which does affect your credit score. Some lenders, however, may offer an online pre-approval which is faster and doesn’t involve a credit history check. An online pre-approval may only consider your financial capacity and offer suggestions on how to prepare yourself to take a home loan.

Most lenders, however, will likely prefer to make a full assessment of your financial situation by requesting a credit report in addition to your bank statements and tax returns. Such a credit inquiry, sometimes called a hard pull, is usually recorded on your credit file and can therefore affect your credit score. If you approach several lenders and all of them initiate credit inquiries, this will impact your credit score negatively. Sometimes credit reporting agencies make an exception in terms of including multiple credit inquiries if they are made within a certain period. It would still be best to avoid making multiple applications with different lenders.

What are some advantages of a good credit score?

You should know about the advantages of credit score improvement as there are many occasions when having a good score is helpful. If your credit score is categorised as good, very good, or excellent, it can indicate you have strong borrowing power. This may encourage lenders to give you special discounts on interest rates and other loan terms. You may also find it easier to get approved for a credit card or a property rental. You can also try to negotiate terms using your superior credit score as leverage.

A high credit score indicates that you are financially responsible, but it requires you to be disciplined. If you currently have a good credit score, you still need to remember not to apply too often for credit cards or loans as these can quickly pull down your score. On the one hand, you may have better access to credit, but your good financial habits mean that you may not need to access this credit. Having some credit products can help build up your credit report, and therefore your credit score. You would just need to keep the debt and limits to a minimum and pay the bills on time. It’s never advisable to take out credit that you can’t afford to pay as it negatively impacts your credit history.  Even if you have a good credit score, you can always improve it further.