Your credit score is an important part of your financial standing, but it’s not always easy to understand. Not only do different credit scoring agencies calculate your score differently, but you also might need to check your updated credit score. Whether you’re about to request your credit score for the first time or you’re hoping to improve your score, it’s not always clear whether your score is good or not.
It’s helpful to understand the average credit score in Australia so you have an idea of how yours relates. The higher the score, the better. Even if you have a low credit score, there are many steps you can take to improve it over time. Your credit score is used by banks, lenders, and other loan providers to assess your creditworthiness, so this is an important part of your financial standing. In this guide, we’ll answer the big question once and for all. What is a good credit score in Australia?
How Do Credit Bureaus Determine Your Score?
First, how are credit scores calculated? When you understand this process, it’s easier to understand why this score is so important. In Australia, there are four credit reporting agencies. They are Equifax, illion, Experian, and the Tasmanian Collection Service. While each bureau collected financial information differently, they all base their score on the following factors:
- Age of your credit file
- Type and amount of credit you’ve applied for previously
- Negative credit listings
- Payment history
- Court judgements
- Opened and closed accounts
Over time, Australian credit reporting has changed. This has led to a lot of confusion with reporting. Until March 2014, credit reporting in Australia only used negative reporting. This means only negative marks against you were considered, making it harder to improve your credit rating. Now, lenders make a more balanced assessment with current accounts and payment history.
What Is a Good Credit Score?
With that in mind, what makes a good credit score? You can check your credit score with credit bureaus directly or using a third-party provider. Your score varies between 0 and 1,000 or 0 and 1,200 depending on the credit bureau. In general, the higher the score, the better your creditworthiness. What makes a good score? Here’s a score range:
- Excellent 800 – 1,000
- Very good 700 – 799
- Average 625 – 699
All of these scores above are a good place to be. Most financial experts argue you need to be above 700, but this depends on your goals. If you’re actively applying for a loan or mortgage, you’ll want a higher score. Most lenders have a cutoff that they consider in order to qualify. However, low credit score loans are available.
What is the average credit score? In Australia, the average credit rating is 695. This score varies by age and gender, but most Aussies have a fair or average credit rating. This means there’s room for growth for most people, so there is always room to improve.
What Is a Bad Credit Score?
On the other hand, what’s a bad credit score? Any score between 0 and 624 is considered “bad.” There are different levels to this score, and 550 to 624 is generally fair. That being said, there are always steps you can take to increase and improve your financial history.
What can cause a low credit score? A few things can negatively drop your credit score:
- Late or missing payments
- Recently applied for a new mortgage, loan, or credit card
- Credit utilisation increase
- Closed a credit card
- Foreclosure or bankruptcy
- Credit limit decrease
All of these things above can cause your credit score to drop. If you notice your score is below 624, it’s time to take action. Not only will this limit your access to lines of credit, but it can get in the way of your debt payoff goals.
Why Is Good Credit Score Important?
With all of this in mind, why is having a good credit score an important thing in Australia? Having a good score is a way to show lenders that you’re in control of your finances. This number is used to determine whether or not you’ll return payments on time. This means it’s important if you’re applying for a loan, mortgage, rental property, credit card, and more.
If you have a good credit score, it will be easier to:
- Open a new line of credit
- Secure a mortgage
- Apply for a rental property
- Ask for a home loan discount or mortgage refinance
- Open a credit card with great rewards
- Access a peer-to-peer loan
- Borrow more money from lenders
Think of it this way: lenders are in the business of making money. That wants to lend funds to those who are proven to be the most responsible. When you consistently prove you can pay your loans off on time and in full, this is a great sign for lenders. They’ll want to lend to you again in the future. This is the principle behind credit ratings.
However, what happens if you’re new to credit or if you have a few negative marks dragging down your score? The good news is there are many steps you can take to improve your score. You don’t need a perfect score to access most of the benefits above. Most lenders are open to working with borrowers that have above average credit.
How Do You Check Your Credit Score?
Now that you know what makes a good credit score, how do you check your current rating? Your credit score is based on the findings in your credit report. You have a right to access your credit score for free in Australia. There are a few different ways to do this.
First, if you apply for a credit card or loan, the company runs a credit report on your behalf. You can usually access your report online within a day or so after requesting a credit check. You can also wait up to 10 days to get your report by email or mail.
If you’re not currently applying for something that requires a credit check, you can also contact credit agencies directly. You can contact Experian or Equifax for your free credit score and report. You qualify for one report every three months. It’s a good habit to request your full credit report at least once per year to stay on track with your progress.
Lastly, you can use an online credit score tool to check your credit report, but you might have access to one through your bank as well. These are typically available for free, and you can set up automatic alerts for any changes.
How to Improve Your Credit Score
Regardless of your current credit score, you might wish to make some improvements. You can easily improve your credit score with a few easy steps. These positive changes all affect your credit score, though it might take a bit of time. Though confusing at first, credit scores don’t have to be complicated.
- Check for mistakes: First, it’s important to check for mistakes on your current credit report. Mistakes and fraud can impact your score negatively. Mistakes could be being credited for a family member’s debt, fraud, or someone with a similar name being mistaken as you.
- Pay bills on time: One of the best ways to improve your credit score is also the simplest. By repaying your bills on time, you don’t have any defaults on your credit report.
- Pay down your debt: When you pay down your debt, you reduce your overall debt usage ratio. Using a smaller portion of your credit shows responsible repayments.
- Don’t open lines of credit you don’t need: Another important step is to avoid opening lines of credit you don’t need. While this might seem like it can increase your available credit, it could backfire.
- Build your credit history: If you’re new to building credit, opening a credit card and using it responsibly is a great way to manage your finances. In fact, someone with no credit cards or loans is seen as a higher risk than someone who has a history of managing credit cards responsibly.
Credit ratings are an important part of long-term finances, but they can be tricky if you’re not careful. These tips help anyone rebuild their credit with confidence.
Understanding Credit Ratings
Now that we’ve explored what a good credit score is in Australia, you’re ready to continue building your credit yourself. Whether you’re opening your first credit card or applying for a mortgage, your credit rating is one of the most important tools at your disposal. However, many Aussies have work to be done when improving their own scores.
Are you worried about your current credit score? You’re not alone, and you don’t have to struggle with the steps needed to rebuild. Debt Busters have over 15 years of experience helping Aussies of all backgrounds navigate different lending options and understand their credit score. Contact us for a consultation today on 1300 368 322.