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What Are Credit Scores?

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What Are Credit Scores?

What are credit scores used for, and how do they affect you as a borrower? This is just one of the many questions Australians have in mind. We understand that many borrowers feel anxious about their credit ratings, especially when they’re looking to apply for loans or other forms of credit.

In this article, we’ll answer the common questions borrowers have about credit scores and shed light on how they impact their chance of getting favourable credit terms!

How important are credit scores in Australia, and what range is considered to be good?

Prior to answering ‘What’s a good credit score, and how important are they?’ it’s important to first understand ‘What are credit scores?’ 

A credit score or rating is a numerical value that reflects the level of creditworthiness attributed to you as a borrower. In essence, your credit score condenses the information from your credit report into a single number.

Credit scores are significant for individuals for several key reasons. Generally, they indicate how well you have managed and repaid credit in the past, reflecting your responsible credit management.

When you apply for credit, providers typically request your credit file from credit reporting organisations. Your report as well as your credit score play a crucial role in the lender’s decision-making process. A higher credit score increases your chances of securing credit.

Additionally, your credit rating may influence the amount of credit a lender will make available to you and any other terms they may offer. Furthermore, credit scores can impact the interest rates you receive.

And in regards to the question ‘What are credit scores and what are they used for?’ they are not limited to personal loans or credit card applications. Your credit score is also a factor when you apply for other types of credit, such as mortgages, as well as job applications.

Now, let’s answer ‘What are credit scores, and what is a good credit score range in Australia?’

Credit scores range from 0 to 1,000 or 0 to 1,200, depending on the credit reporting agency. The three main credit reporting bodies in the country are Equifax, Experian, and Illion. Each organisation follows its own credit scale when measuring how good a credit score is.

Equifax provides the following credit score classifications:

  • Good: 661 to 734
  • Very good: 735 to 852
  • Excellent: 853 to 1,200

Moreover, illion uses the following credit score classifications:

  • Good: 500 to 699
  • Great: 700 to 799
  • Excellent: 800 to 1,000

Lastly, Experian categorises credit scores as follows:

  • Good: 625 to 699
  • Very good: 700 to 799
  • Excellent: 800 to 1,000

Given the varying scales used by different credit rating organisations, the best way to define a good credit score is by assessing your situation when applying for credit. This is because providers have their own criteria for approving a credit request. Additionally, your desired borrowing amount can influence whether credit providers consider your score sufficient. Larger amounts may require a higher credit score.

What are the factors that affect my credit rating?

In answering ‘What are credit scores?’ it’s worth noting that ratings are based on an individual’s credit report, a comprehensive summary of their credit history. And the country’s Comprehensive Credit Reporting (CCR) system indicates that both positive and negative credit behaviours should be included in your file. 

If you want to know how to work on your credit score, you should know the factors that positively affect it. These may include:

  • ensuring timely payment of bills,
  • avoiding frequent applications for new credit cards or loans in a short period of time;
  • paying off outstanding loans and credit card debt; and
  • making on-time monthly repayments consistently.

And if you’re wondering, ‘What are credit scores, and what can negatively affect mine?’ these behaviours can harm your credit rating:

  • applying for credit too frequently;
  • making late payments on your credit card or loan; and
  • not paying bills on time.

How accurate are online credit reporting agencies, and how many times can I request from them?

Since you now have a deep understanding of ‘What are credit scores?’ you may want to know how to get credit scores from online agencies. These agencies use data from one or more credit reporting agencies to calculate your rating. Generally, they can provide accurate scores as long as the information on your credit report is correct. The frequency of obtaining a credit score depends on the credit score provider.

If you need more information in terms of questions like ‘What are credit scores?’ and ‘What’s a great Australian credit score free checker?’ MONEYME is here to help.

We have a mobile app that lets you get your credit scores within minutes. Even better, you can view your ratings for free! To ensure accuracy in your credit score, we’ll ask you to provide some information, such as your name, number, email, DOB, address, and driver’s licence number (optional).

Once everything is set up, you can access the Credit Score tool, which offers more than just providing your credit score. It provides you with personalised insights about your credit rating. You will also gain insights into the factors banks and lenders consider when assessing your creditworthiness, helpful strategies to enhance your credit score, and access to special offers from MONEYME.

*Canstar’s Innovation Excellence Award 2022 was for MONEYME’s product Autopay. Credit scores are provided by Price Enquiry Pty Limited ACN 647 624 155.

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