In the world of finance, your credit score is like a report card that reflects your creditworthiness. Lenders use it to assess your ability to repay a loan and manage your finances responsibly. Keep reading for a breakdown of what you need to know:
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Understanding how credit scores work can help you make more informed decisions over time. This guide provides general information about:
- What a credit score is
- Factors that may affect a credit score
- How credit scores are commonly used by lenders
- Common behaviours people focus on when managing their credit history
The information is general in nature and is intended to help you understand how credit reporting works.
What is a credit score?
A credit score is a numerical summary of your credit history.
In Australia, credit scores typically range from 0 to 1200. Higher scores generally indicate a stronger credit history based on factors such as repayment behaviour and existing credit commitments.
Lenders may use credit scores as one of several inputs when assessing applications, alongside other information, to understand an applicant’s credit history.
What affects your credit score?
Many different factors may influence a credit score, including:
- Repayment history: Whether credit commitments have been paid on time
- Credit utilisation: How much available credit is being used
- Length of credit history: How long credit accounts have been held
- Credit mix: The types of credit products recorded on a credit report
- Number of applications: Multiple credit applications in a short period may have a negative impact
Credit scores are based on patterns over time, so consistency in how credit is managed can be an important factor.
Why it matters
A credit score is one of several factors lenders and other service providers may consider when assessing applications.
It can be used to help assess credit history and risk, alongside other information such as income, existing commitments, and repayment behaviour.
Factors sometimes associated with higher credit scores include:
- More favourable interest rates on some credit products
- Higher approved credit limits in certain circumstances
- Smoother application processes for products such as loans, mobile plans, rentals, or utilities
Outcomes can vary depending on the provider and the individual’s overall circumstances.
How people improve their credit scores
Credit scores are influenced by patterns over time, and small, consistent actions can contribute to how credit history is recorded.
Some steps people commonly take include:
- Paying bills and credit commitments by their due dates
- Reducing outstanding credit card balances where possible
- Limiting the number of credit applications made within a short period
- Reviewing their credit report periodically to check the information recorded
Credit reports are available free of charge from credit reporting bodies, and reviewing them can help ensure the information held is accurate.
Additional credit score resources for Australians:
- CreditSmart : provides free resources and tools to help you understand and manage your credit. Â
- National Debt Helpline: offers free financial counselling for those struggling with debt.
Disclaimer: This article is for general information only. It does not take into account your individual circumstances and is not financial advice. Consider seeking independent advice before making financial decisions.
