Written byA credit score is a number calculated from your credit report that tells lenders how likely you are to repay, based on your borrowing history.
Also known as: credit scoring, credit file score, consumer credit score
Key points
- Credit reporting bodies such as Equifax and Experian each run their own model, so your number differs between them.
- Scores are built from repayment history, credit enquiries, the types and limits of credit you hold, and any defaults or court judgments.
- Under comprehensive credit reporting, repayments made on time are recorded as well, not only the ones you miss.
- A free credit report is available from each reporting body every 3 months, and genuine errors can be corrected.
- A score is one input into a lending decision, not the decision: income, security and the ability to meet repayments still matter.
How a credit score is worked out
Your score is generated from what sits on your credit report. The heaviest ingredient is repayment history: whether accounts have been paid on time and how far anything has slipped. Around that sit the accounts you hold, their limits, how long you have had them, the applications you have made, and any default listings, court judgments or insolvency records.
Each reporting body uses its own model and its own scale, so the numbers are not directly comparable. Many lenders also run an internal scorecard built from the same report plus whatever else they know about you. That is why one lender can decline an application that another approves.
What moves your score
Paying on time is the biggest lever, because repayment history carries the most weight and stays on file for years. Missed payments, arrears that harden into a listed default, and a run of applications made in quick succession all drag a score down.
Steady, unremarkable behaviour lifts it: long standing accounts in good order, limits you use sensibly, and few enquiries. Closing an old card can shorten your history, so it does not always help. If money is tight, talking to the lender about hardship before a payment is missed does less damage to the file than going quiet.
Credit scores and finance applications
For personal and vehicle finance the score is one of the first things a lender checks. A strong score widens the choice of lenders and can improve the terms offered. A weaker one narrows it, though bad credit finance options exist and are priced for the extra risk they carry.
For business finance the picture is broader. Lenders look at the directors' personal files, the business's own credit profile, trading history and the asset being financed. Because each application leaves a footprint, a broker who knows lender credit policy can match an application to a lender before it is lodged, which can reduce the number of applications made.
Example
A sole trader wants to finance a $45,000 ute. She checks her credit report first and finds a telco default she knew nothing about, listed against an old address. She disputes it with the reporting body, the telco cannot support the listing, and it comes off. Her score improves and the enquiry she was about to make with a lender that would have declined her never happens. Checking the report before applying, rather than after a knockback, saved her a footprint on the file.
Not to be confused with
- Credit rating
- a credit rating usually describes a company or a bond issuer, while a credit score describes an individual
- Comprehensive credit reporting (CCR)
- that is the reporting regime; a score is one number derived from what the regime records
Frequently asked questions
What is a good credit score in Australia?
There is no single answer, because each reporting body uses a different scale and its own bands, from below average through to excellent. What counts as good also depends on the lender and the type of finance. Check your score with the body the lender uses rather than assuming they match.
How do I check my credit score for free?
Go directly to the credit reporting bodies. You can get a free credit report from each of them every 3 months, and again after a credit refusal or a correction. A score is a separate product each body calculates, so it may or may not come with the free report. Commercial apps show a score from one body only.
How can I improve my credit score?
Repayment history is reported only by licensed credit providers, so phone and utility accounts do not show a month-by-month payment record, though an unpaid telco or utility debt can be listed as a default. Paying credit accounts on time, keeping limits manageable, spacing out applications and correcting errors all help. Improvement takes months rather than days.
Does applying for finance lower my credit score?
An application records an enquiry on your file, and several enquiries in a short window can weigh on a score, because they can look like distress borrowing. One well targeted application is far better than shopping the same deal around five lenders. A broker who knows lender credit policy can match an application to a lender before it is lodged, which can reduce the number made.
How long do defaults stay on my credit report?
Negative listings such as defaults, serious credit infringements and insolvency records stay for a set period fixed by the Privacy Act, measured in years rather than months, and the period differs by listing type. Paying a default does not remove it, but the file is updated to show it as paid.
Related terms
Credit rating
A credit rating is an independent assessment of how likely a government, company or debt issue is to meet its obligations on time, graded from AAA down to D.
Read definitionComprehensive credit reporting (CCR)
Comprehensive credit reporting (CCR) is the system under which lenders share positive credit information, such as repayment history and credit limits, as well as defaults, on your credit file.
Read definitionEquifax
Equifax is a credit reporting body (credit bureau) that collects credit information from lenders and public records to build the credit files, reports and scores used to assess applications.
Read definitionillion
illion was an Australian credit reporting body, now part of Experian, whose consumer and commercial credit files still sit behind many lending decisions.
Read definitionDefault
A default is a borrower's failure to meet the terms of a credit contract, usually by missing repayments, which lets the lender demand the balance and enforce its security.
Read definitionBad credit finance
Bad credit finance is a broad category of lending products designed for borrowers whose credit history shows defaults, court judgments or bankruptcy, problems that make mainstream lenders hesitant.
Read definitionGo deeper
Sources
This article is general information only and is not financial advice.