What is a credit score?
Your credit score is a number that represents your track record as a borrower. It's calculated by credit reporting companies based on information in your credit report. Various factors affect your credit score, like the loans and credit cards you've applied for, how much you borrowed and how consistently you paid it back.
Negative information like any payment defaults are captured in your credit report and will be reflected in your credit score. But the positives will be reflected too, like consistently making your repayments on time and avoiding too many credit applications.
Benefits of checking your credit score
Having a healthy credit record makes a big difference when you apply for new credit. You see, lenders in Australia check your credit score and report before deciding whether to lend to you and how much. They’ll also use this information when calculating your interest rate.
A good credit score can mean a lower interest rate. A bad credit score can will mean the opposite.
So checking your credit score BEFORE you apply can help you understand whether you’ll be approved for credit AND how much you’re likely to pay.
What will you need to check your credit score?
Your name
Address (for the past three years)
Date of birth
Drivers licence number
What you will see in your credit report
Your credit report includes personal and financial details:
1
Personal details
Like your age and the length of time you’ve been at your current residential address.
2
Credit products
What you’ve used in the last two years, including the credit limit, type of credit (car loan, personal loan, home loan etc.), opening and closing dates, credit provider details.
3
Credit applications
Every time you apply for credit.
4
Credit report requests
Every time a credit provider requests your credit report that is recorded.
5
Defaults
Including information on overdue debts or credit infringements. That includes defaults on utility bills, credit cards, loans and other finance products.
6
Court decisions
Like bankruptcies, debt agreements and/or judgements relating to your finances.
7
Company directorship
If you’re the director of a company, details of the company may appear on your credit report.
What can you do once you've checked your credit score and report?
If your aim is to get on top of your finances, knowing your credit score is an important first step.
But the real advantage is in what it allows you to do next.
- See what loans and rates you’re eligible for based on your score
- Check and fix any incorrect items (e.g. if you score is lower than it should be)
- Identify signs of fraud so you can report them (again usually if your score has dropped unexpectedly)
- Identify what is negatively affecting you so you can improve your credit score
- Pay off any defaults that are listed on your report
- Monitor how your changes are positively affecting your score
Understanding and improving your credit score gives you a better chance of loan approval, lower interest rates and more borrowing capacity if you need it.
