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What is a credit score?
16 Mar 2021
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. 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.
In Australia, there are three main credit reporting agencies: Equifax, Experian and Illion, with each using different credit score ranges. To find out more about credit scores and check your score for free, visit our Credit Score Information Hub.
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. The information in your credit report is used to calculate your credit score.
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. One reason you might like to check your credit score – and improve it – is if you are considering applying for a loan.
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.
What credit score should you aim for?
The higher the better, because your credit score affects your access to better loan and credit card deals. The credit score bands used in Canstar’s free credit score tool are from Equifax, and are as follows:
- Excellent: 853 – 1200
- Very Good: 735 – 852
- Good: 661 – 734
- Average: 460 – 660
- Below Average: 0 – 459
What affects my credit rating?
The list of things that can affect your credit report, for better or worse, is pretty lengthy, but here’s a rundown of some of the ways you can help or hurt 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.
If you find your finances are stretched, our Budgeting & Saving section may be helpful. We have spoken with a financial counsellor from the National Debt Helpline about what you can do if you feel overwhelmed by credit card debt.
Cover image source: Ribkhan (Shutterstock).
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This article was reviewed by our Deputy Editor Sean Callery and Digital Editor Amanda Horswill before it was updated, as part of our fact-checking process.
