What is a credit score?

Do you know what your credit rating is? Understanding your credit rating can help you when applying for a credit card or loan.

A credit rating or credit score is a numerical score that represents how trustworthy your reputation is as a borrower. Essentially, your credit score sums up the information on your credit report into one number. The higher the score, the more creditworthy you’ll likely appear to reputable financial institutions.

In Australia, there are three main credit reporting agencies: Equifax, Experian and Illion, with each using different credit score ranges. If you find out your credit rating through a credit agency, you will receive a number between 0–1,200 that summarises the information on your credit report at that point in time. A higher score means you have a good credit rating, with a lower score meaning you have a bad credit rating.

What credit score should you aim for?

You should aim for the highest credit score possible, because your credit score is one factor that lenders can consider in assessing your borrowing capacity for finance, such as for a home loan, personal loan, car loan or credit card. Having a better credit score may help improve your odds of getting approved for finance, and you could even secure a more competitive interest rate, including for personal loans or car loans. You can get your free credit score with Canstar. The credit score bands used are from Equifax, as follows:

• Excellent: 853 – 1200
• Very Good: 735 – 852
• Good: 661 – 734
• Average: 460 – 660
• Below Average: 0 – 459

Get your free credit score

Is a credit rating the same as a credit score?

Yes. In Australia, these two terms are used interchangeably and mean the same numerical score used by lenders. The information in your credit report is used to calculate your credit score.

Why is your credit rating important?

Your credit rating is important because it directly influences the amount of credit that a lender will make available to you as a borrower (your credit limit) and the interest rate and other terms the lender may offer. Lenders use this information to decide if lending you money is worth the risk. Your credit rating is a vital part of understanding your credit health. The system of credit reporting in Australia is known as ‘comprehensive credit reporting’, meaning both negative and positive information could be included on your credit report.

What affects your credit rating?

Good for your credit rating

• Paying bills on time
• Not applying for new credit cards or loans
• Paying off outstanding loans and credit card debt
• Making your monthly repayments on time every month
• Having a consistently low balance on your credit card
• Having an available credit limit much higher than your usual credit balance
• Hanging onto ‘good’ credit accounts where you have faithfully made repayments on time for several years.

Bad for your credit rating

• Applying too often for credit cards or loans
• Applying and being rejected for a credit card or loan
• Making late payments on your credit card or loan
• Bills or payments for at least $150 that are overdue by 60 days or more
• Getting a balance transfer credit card but not repaying the balance transfer by the end of the promotional interest rate period
• Getting multiple balance transfer credit cards one after another.

Source: Canstar, How to improve your credit rating.

What won’t have a negative impact on your credit score is checking it. It’s a persistent – but completely incorrect – myth that asking to see your credit report will negatively affect your credit rating somehow, and for this reason some of us haven’t tried to find out our credit rating.

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