Credit Score 101

What is a credit score?

A credit score is a number that represents how trustworthy or how good you are as a borrower. It’s calculated based on your financial borrowing history – think credit cards, bills, car loans, home loans etc. If you’ve been late or defaulted on payments – this can affect your credit score.
In Australia, credit scores are managed by credit reporting bodies and the number is used by banks, lenders to approve you for future borrowings.
Best way to think of it is like financial report card – the better your history with money – the higher your score.

Why does your credit score matter?

For most of your life, your credit score won’t have an impact on your day to day activities eg buying groceries, filling up fuel, going on holidays etc. However when you go to apply for a loan or credit card, the lender will look into your credit score before deciding whether to approve you or not.
A higher score means you’re more likely to meet the obligations of the loan and becoming approved whereas a lower score means you are seen as a liability and may either be rejected outright or charged a higher rate.
Beyond borrowing, your credit score can affect phone plan approvals, some employment checks and the interest rate you’re charged.

How is credit score graded in Australia?

There are 3 main credit reporting bodies in Australia – they are Equifax, Experian and Illion and each use a slightly different grading model.

As a general guide:

➡️ Over 800: Excellent
➡️ 700-799: Good
➡️ 500-699: Average
➡️ 300-499: Not Great

It is affected by your previous repayments history and credit enquiries/applications. The good news is that negative outcomes don’t stay on your report forever and your score can improve overtime with better financial habits.

How to check your credit score for free?

Here’s the part most people don’t know — checking your credit score in Australia is completely free, and checking it yourself has absolutely no impact on your score whatsoever.

There’s no reason not to do it. Here are three easy ways.
1️⃣ The first is ClearScore. Download the ClearScore app on your phone, sign up in about two minutes, and you’ll have access to your full credit report straight away. It’s probably the most user-friendly option and gives you an easy-to-read breakdown of everything on your report. It also updates regularly so you can track your score over time.
2️⃣ The second option is Equifax directly. Equifax is one of Australia’s official credit reporting bodies, and because of that you are legally entitled to a free copy of your credit report from them once every three months. Head to the Equifax website, request your free report, and you’ll receive it without needing to sign up for any subscription or hand over any payment details.
3️⃣ The third way is through Canstar. Canstar is a well-known Australian financial comparison site and they offer a free credit score check through their platform. Just search Canstar credit score, follow the prompts, and you’ll have your score in a few minutes.