Knowing your credit score – and having a good one – is crucial to your financial health, especially right now with interest rates and the high cost of living.
However, according to Salt&Lime, two thirds of adults are unaware of their credit score, despite 79% having at least one credit product.
If you don’t know your credit score, read on to find out how you can access it. If you do, and it’s not looking good, we’ve provided some smart tips on how to improve your credit score and why it matters.
Contents:
- What is a credit score?
- How is your credit score calculated?
- What is a good credit score?
- Why does a good credit score matter?
- How do I check my credit score?
- How often should you check your credit score?
- How to improve your credit score
- How long does it take to rebuild a credit score?
1. What is a Credit Score?
Your credit score is a figure that represents your track record in applying for, borrowing and paying back credit or financial products, such as loans. Its purpose is to give people an idea of whether or not you’re a reliable borrower.
Your individual credit score sits somewhere on the scale of zero to 1,200. In general, the higher the score, the better your credit rating – and vice versa.
Knowing your credit score can help you understand how much or little a lender might lend you and why, which is important if you need to access cash.
2. How is Your Credit Score Calculated?
Your credit score is calculated by credit reporting agencies that look at your personal information and credit history. This includes:
- Personal information – your age, where you live, income
- The types of credit providers you’ve used – banks, utility providers, cards
- The amount of credit you’ve borrowed
- The number of credit applications and enquires you’ve made
- Any unpaid or overdue loans or credit
- Any debt agreements or personal insolvency arrangements relating to bankruptcy.
Here in Australia, we have three main credit reporting agencies: Equifax, Experian and illion. Each has slightly different ways of calculating your score. So, essentially, you have three credit scores!
3. What is a Good Credit Score?
While your credit score varies slightly between agencies, what’s considered a good credit score generally falls within a similar range.
According to comparison site Finder, a good credit score can be anything above 500, depending on which of the three credit reporting bodies—Experian, Equifax, or Illion—you get it from. Here’s the breakdown by agency:
- Equifax: 622+ is a good score
- Experian: 625+ is a good score
- illion: 500+ is a good score
A credit score above 700 is generally considered ‘Very good’, and above 800 is considered ‘Excellent’.
4. Why Does a Good Credit Score Matter?
A good credit score matters because you’re more likely to have an application for a credit or loan approved if you have one.
It can also impact how much they’re willing to lend you, the interest rate they charge, and other credit or loan terms. For example, you may get reduced security deposits on rentals or better mortgage or car insurance rates.
Better interest rates mean you spend less money paying off your loans and have lower monthly repayments. They also make managing your debt easier, which leads to a more positive cycle of being able to pay off debt, helping you access further credit.
Your credit score can even affect your chances of getting a job, as some companies look at it to get a clearer picture of who you are.
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5. How do I Check my Credit Score?
Credit reporting agencies must give you free access to your consumer credit report once every three months. You can also request a copy if:
- You’ve been refused credit in the past 90 days
- Your credit-related personal information hasn’t been corrected
In addition, you can check your credit score on free sites, including Credit Savvy and Clear Score. To access it, you’ll need to confirm some basic personal information, including your name, date of birth, address and driver's licence number.
6. How Often Should You Check Your Credit Score?
Your credit score isn’t fixed. It reflects your situation only at a time a check takes place. One slip-up can reduce it.
Because it changes, check your credit score quarterly, every six months, or once a year, depending on your financial situation. If you’re financially struggling, it pays to keep a more regular eye on it.
It’s also a good idea to check your credit score in the following instances:
- When you’re planning to apply for a loan or credit card
- If you’re waiting for a negative event, such as a loan default, to be wiped from your record
- If you’re concerned you’ve become a victim of identity theft
7. How to Improve Your Credit Score
There’s no doubt that your credit score matters, but what can you do if you check your credit report and the number isn’t looking good? Here are our top tips:
- Pay your credit card and loan repayments on time – If you’re not good at remembering, set up a direct debit to cover the minimum payment.
- Show that you’re generally a reliable bill payer – This means catching up on past-due accounts and not missing payments.
- Have a credit card - Measured credit card use and timely payments actually demonstrate your ability to pay off debt.
- Don't apply for too many credit cards – Applying for lots of cards can suggest you’re in financial trouble.
- Pay down revolving account balances – If you don’t, you accrue monthly interest – an indicator you can’t manage your money.
- Limit how often you apply for new accounts – Again, this can imply you’re having financial difficulties.
- Don't change houses or jobs too often – If you do, lenders may assume you’re not a very stable person, making you a higher lending risk.
- Check your score is fair and accurate – Your report isn’t immune to errors.
8. How Long Does it Take to Rebuild a Credit Score?
Without action, a poor credit score, according to Experian, can last between two and seven years depending on the reason, as follows:
- Two years – Repayment history information
- Five years – Overdue accounts listed as a payment default, overdue accounts listed as clear outs, writs and summons, and court judgments
- Seven years – Overdue accounts listed as a serious credit infringement
However, by making payments and following our other tips, you can improve your credit score sooner. So check and start upping your credit score today!
Credit Score Not Looking so Good?
If your credit score isn’t looking good and you’re struggling to make payments to improve it, get in touch with our team of debt solution specialists today on 1800 534 534 for professional, non-judgmental support and advice.
