Under Australia’s new comprehensive credit reporting system, licensed credit providers can access information about your credit score, also called credit history. The idea is that this information will help lenders make more informed decisions, but the downside for borrowers is that it can make it harder to get credit.
So, what’s changed? In the past, lenders could consult your credit history to see if you had applied for credit for personal or business reasons, but it would not have recorded whether you were successful or not.
Your credit history would also show if you defaulted on a loan, but it would not show whether or not you had missed repayments along the way. Both these types of information are now available to lenders. The more you understand your credit history, the better equipped you’ll be to make smart financial choices.
What is an Equifax score?
A credit score is the number calculated based on all of the information in your credit report. This is the number that helps credit providers understand your level of responsibility. In other words, it’s a good indicator if you’re likely to repay them if they offer you a loan or some form of credit.
In Australia, the leading credit reporting body is known as Equifax. This is why you might also hear your credit score called an Equifax score. The number you’ll be assigned is between 0 and 1200. The higher your score, the more likely you’ll be able to pay back your loan.
What are the different score ranges within the Equifax score system? Here is a credit score range breakdown:
- Excellent (833 – 1200) – Scores over 833 are in the top 20% of Equifax’s credit-active population. These are the highest possible scores, and they make it easier to negotiate the best deals on loans and other forms of credit.
- Very good (726 – 832) – A very good score is also something to be proud of. This type of score suggests it’s unlikely you’ll fail to repay anything or be in bad standing within the next 12 months, and it gives you access to better credit options.
- Good (622 – 725) – A good score still gives you a lot of options when it comes to finding credit, but you should still be proactive about improving your score.
- Average (510 – 621) – An average score is common if you’re recovering from an incurred event or you’re facing economic struggles. If you have this type of score, it’s time to focus on paying loans and bills on time and reviewing your credit frequently.
- Below average (0 – 509) – A below average score puts you in the bottom 20% of the credit-active population. It means you’re likely to experience a credit adverse event in the near future, and it’s a call to arms to repair your credit score.
Familiarising yourself with the different credit score ranges helps you see where you stack up. The better your score, the more options you’ll have for securing lower interest payments and credit rewards. Luckily, your credit score is flexible and always changing.
What can banks see on my credit history?
Your history lists all the credit accounts you have held in the past, including when you opened and closed them and the maximum amount available to you. It also shows default information, where a payment of more than $150 was unpaid for more than 60 days. It shows whether or not you met repayments over the last two years.
It may contain a creditor’s opinion that you tried to get credit dishonestly, plus any court decisions made in regard to your accounts, or bankruptcy, debt agreement and insolvency information. Essentially, your credit file will have a full synopsis of your credit history. This is why it’s so important to keep your credit in good standing.
How does credit score work?
A credit score is an automatic assessment of your ability to service a debt. Banks and other financial institutions generate their own credit scores based on your personal situation, your credit history and your credit application. Your Equifax score is calculated using the following:
- Your number of credit accounts
- How many transactions you’ve completed in the past few months
- How many loans or lines of credit you’ve applied for recently
- Frequency of your credit transactions
- Your repayment history
- Any credit infringement problems such as defaulting or bankruptcy
Based on your credit history, Equifax assigns you a score from 0 to 1200. As we mentioned before, the higher the score, the more likely you will get the loan you are after. The average score is 550, while 700 is ‘excellent’.
Get credit score counselling today.
In a perfect world, we would all have spotless credit histories with no defaults or missed payments, no loan refusals and steady employment and constantly improving incomes. However, none of us are perfect. These imperfections can find their way into our credit history and from there into our Equifax credit score.
Fortunately, there are ways to improve your credit score. With a bit of proactive work and help from a professional, you can get your credit into top shape.
Your credit score is more important than ever. Now that you understand how it works, you’re prepared to start taking action to not only learn more about your own score and credit history, but also make improvements.
If you need professional help with your debts, we’re here to help. Our debt solutions have helped thousands of Australians get back on their feet. Contact us today to learn more by submitting your details below or calling us on 1300 368 322.