- Your credit score plays a key role in a lender’s decision to offer a loan or credit.
- Some of the factors considered in credit scoring include repayment history, length of credit history, and your total debt.
- You can improve your credit score by monitoring your credit report regularly, and by making sure that you pay all your debts on time.
Your credit score is more important than you think and affects more than just your finances. It can make it easier for you to get certain loans, mortgages and even phone contracts. Moreover, it will influence the cost of borrowing with credit providers offering preferential rates for higher credit scores.
Your score can also differ depending on factors such as the credit scoring model used, and the information provided to the credit bureaus. This article will give more information about what a good credit score is, and what you can do to improve it.
What is a credit score?
Your credit score is a number that reflects your creditworthiness and how well you manage your finances. It’s calculated by looking at your accounts, including your outstanding debt, current payments on those accounts, and the length of time it takes for you to make payments.
Lenders use this score or rating as one of the factors in determining whether to grant credit or a loan. It ranges from 0 to 1000, or occasionally 1200, depending on the credit bureau. In addition, your credit score will generally fall on a five-point scale: below average (0-459), average (460-660), good (661-734), very good (735-852), and excellent credit score (853-1200). The higher your score, the more likely you are to be given credit because it shows your good past financial behaviour.
What is a good credit score?
The average credit score in Australia is 695.6. Equifax is one of Australia’s three major credit scoring models, along with Experian and Illion. These credit scoring models can provide you with a copy of your credit score and credit report. Your credit report serves as a record of your credit history and contains details on any credit or loan products you’ve used, your history of repayment, any credit or loan applications you’ve made, as well as any bankruptcies, defaults, or court judgments you may have had.
Each of the five bands that make up a credit score corresponds to a different level of creditworthiness to the lender. Typically, your credit score range is between 0 to 1,200. A “Good” Equifax credit score starts at 661 or higher, a “Very Good” score at 735, and an “Excellent” score at 853 or above. Generally speaking, the better your credit profile and the smaller your credit risk is, the higher your credit score is.
You can check your credit score directly through Equifax, Experian, or Illion. You can also view your Equifax and Experian scores through Tippla for free.
Why Having a Good Credit Score Is Important
Below are some of the reasons why having a good credit score is important.
- You will have more chances of loan and credit card approval
Having a solid credit history will help you when applying for loans or credit cards, even though it doesn’t ensure that your application will be accepted. Lenders will use your credit rating to determine whether you’re a good credit risk. The higher your credit score rating is, the more likely it is that you’ll be able to get approved for loans or credit cards that you need.
It should be noted that while your credit score is a crucial consideration in the approval process, it is not the only one. Lenders will also take other criteria into accounts, such as your income and other debts.
- You can get a better deal on loan interest rates
Banks and private lenders are less likely to issue loans or lower interest rates if you have a bad credit score since they believe you may default on your payments. However, there are some instances where this may not be true. For example, if someone has had no recent delinquent payments on their accounts for more than six months, then they may be able to improve their chances of getting approved for a loan.
- It will be easier for you to reach your goals
Having a good credit score gives you much more freedom when it comes to making significant purchases, especially if you lack the initial finances to pay for anything in full. This flexibility applies to weddings, cars, house upgrades, and even dream vacations.
How to Check Your Credit Score in Australia
You can get your credit rating report for free on Tippla.
After that, you’ll be asked to make an account and provide personal details including:
- Email address
- Mobile Number
Your credit score contains personally identifiable information. That’s why they will ask you to confirm it’s you. You must provide one of the following papers to establish your identity throughout the verification process:
- Driving Permit
- Card of Age
- Medicare Card
How is your credit score calculated?
A credit reporting agency like Equifax generates your credit score based on the data in your credit report at the time your score is requested. Credit scores are calculated by an algorithm that uses information from your credit file, which is provided to credit bureaus from credit providers, credit card companies, and utility providers. The factors that go into determining your credit score include patterns in your credit history, characteristics of your credit profile, and aspects of your credit applications.
Typically, this contains information on
- Your credit card or loan payment history
- A summary of all the money you’ve ever borrowed
- An estimate of your ability to pay payments on time on your credit accounts
- Any current credit limits
- The quantity and regularity of your previous credit applications
- Any bankruptcies, defaults, or court judgements under your name
What is a bad credit score?
A bad credit score can prevent you from obtaining the credit you need as it suggests to the credit provider you are a higher-risk borrower. Lenders use your credit report data to assess your eligibility. Your credit record is taken into account by banks and other financial organisations when determining who is eligible for loans. However, some lenders will still issue loans to persons with poor credit histories but at higher interest rates to mitigate their risk. Applicants with low credit scores may receive the same interest rate from other lenders, but they may also be subject to other conditions, such as late payment fees. You might be able to improve your financial situation if your credit score is below average by making payments on time and paying off your debts.
For Equifax, a score of 0 to 459 is considered a bad credit score, which can be a strong sign that you are not financially secure and are not credit-worthy as a borrower.
Equifax credit score bands
|Below Average||Average||Good||Very Good||Excellent|
|Equifax score range||0-459||460-660||661-734||735-852||853-1200|
What can cause a bad credit score?
Most businesses weigh on late payments when determining your credit score. This is because missed payments may indicate that you are having trouble handling your money. As a result, you might not meet their loan requirements and may not have the repayment capacity.
Too many inquiries
The number of inquiries you have made to lenders can also cause a bad credit score. This is because too many inquiries can indicate that you’re in financial distress.
Bad debt can also cause a bad credit score, particularly if a lender or bank decided to report the account to credit-reporting agencies. Not only will this lower your credit score, but it may also affect your ability to secure future financing.
Not paying off what you owe
Not making your payments on time may affect your credit score. This is because if you have an outstanding debt that you have defaulted on, your credit report will reflect this and will also lengthen the time it takes for you to build up a favourable report.
Using a balance transfer
If you have too much debt in your credit report, paying it down with a balance transfer can help improve your credit score because it shows that you can repay what you owe. But if you keep transferring balances back and forth between accounts, that’s going to hurt your credit score—especially if you do it more than once within a short period of time.
If you have a lot of debt, you may have to declare bankruptcy. While filing for bankruptcy may free you of the responsibility of repaying some of your obligations, there are long-term consequences that you should consider. Even after you discharge your bankruptcy, it remains on your credit history since it is seen as a public issue. Before you filed for bankruptcy, some of your creditors could have informed the credit bureau about payment delays. If you had a high credit score before you started having financial problems, these occurrences may have caused it to fall. Once you’ve filed for bankruptcy, you can potentially see it decrease even lower.
How To Improve Your Credit Score
Pay off debt
Paying off debts will help raise your credit score. Timely repayment of credit or loan products is included in credit reports to show “positive” credit reporting. However, failing to make your payments may also be noted on the account. You should make as many payments as possible by the due date or negotiate an appropriate loan term payment with your credit card issuer or other lenders.
Don’t miss payments
You can raise your credit score by making timely payments of your bills such as telephone and utility bills. This is crucial if the bill in dispute is $150 or more in value. A default could be noted on your record if the payment is more than $150 and more than 60 days overdue. The most serious negative items that might appear on a credit report are defaults. For five years, defaults will remain on your report. To keep up with your payments, think about setting up automatic payments. If you move, be sure to let your phone and utility companies know so that you aren’t left holding unpaid debts in your name.
You can also seek the assistance of a financial counsellor to create a plan that will enable you to pay off any outstanding obligations as soon as feasible.
Make sure to think before applying for a new credit card
Your application for a new credit or loan product may appear on your credit report whether you are accepted or not. Multiple credit applications submitted in a short period of time may indicate to lenders that you are under financial stress, which might lower your credit score. In addition, a credit score will appear on your report if the application involves a hard credit enquiry.
Keep track of your spending
Keeping track of your spending, your credit card and loan balances can help you manage your debt and improve your credit score. Track how much money you spend on each category and pay those charges in full each month.
Monitor your credit report
You should thoroughly review your credit report to make sure all the data is true. Your entire credit score may be affected if your credit report does include inaccurate information. You might be able to identify any mistakes on your credit report by comparing it to bank statements and other financial records. If this happens, you can contact a credit reporting organisation or your creditor to request that your report be revised. Your credit score can rise as a result of this.
The Bottom Line
A good credit score is essential if you want to get approved on payday loans or mortgages. It helps lenders determine whether or not you prioritise repayments, and it can ultimately keep you from taking out a personal loan that you may not be able to afford. In the long run, obtaining a good credit score can save you thousands of dollars on interest and fees. However, it is your responsibility as the borrower to maintain good credit so that you may access future lending opportunities if needed.