You’ve probably heard of credit ratings and scores, but do you know what they really are and how they can affect you? Keep reading to learn everything you need to know about them.
Also known in Australia as a credit rating, a credit score is a number used to represent your reputation as a borrower. Calculated based on the information included in your credit report, this number helps lenders determine if they are willing to lend money to you, and, if they are, your credit limit as a borrower, the interest rates they’ll offer and any other applicable terms.
If you choose to find out your credit score, you’ll be given a number that sits somewhere between 0 and 1,000 or 0 and 1,200, depending on the credit bureau used. As a general rule of thumb, the higher the score, the better your credit rating and the more credit-worthy you’ll be considered by financial institutions.
Not only is it free to check your credit score, but it is also easy to do so. SocietyOne allows you to check your score for free without impacting your credit score. It only takes a minute to check your score. Have your driver’s licence or proof of age card handy, as it helps with verifying your identity and accessing your credit score information.
It is important to note that there are three different national credit reporting bodies (CRBs) that operate in Australia, including:
Different CRBs collect information from companies that choose to report to them and use their own methods to calculate a credit score. For example, Experian and Illion have a score range of 0 to 1000, while Equifax Australia has a score range of 0 to 1200. This means your credit profile may appear differently between credit score providers.
SocietyOne’s credit score calculations are powered by Experian, meaning that your score may differ from those powered by Illion and Equifax. All CRBs listed above allow you to order a free credit report once every 12 months, making it easier to get a better idea of your credit history across all CRBs.
An algorithm is used to calculate your credit score, analyse your credit history, credit profile and past credit applications to get a better understanding of your behaviour as a borrower.
Your credit history is analysed for patterns that could include:
Your credit profile is assessed based on factors such as:
Your previous credit applications can also impact your credit score, with some the following considered:
Historically, credit reporting has focused primarily on negative credit events, but a newer system, known as Comprehensive Credit Reporting (CCR), ensures that the positive actions you make, such as making monthly payments on time, are noted too. Under this system, lenders are required to share more data, providing a more accurate and comprehensive picture of your credit history than ever before. This approach may assist those with a thin or short credit history and reduce the impact of a single negative event.
Previously, only data about credit enquiries, credit provider names and overdue credit account details had been recorded in consumer credit files. Now, additional information such as the type and amount of credit applied for, credit limits for each account and repayment history are included. With more information available to CRBs, people may see an improvement in their credit score if they have been good with their repayments.