Credit scores and how to check yours
Credit can play a big part in how we spend money, helping pay for everything from that tasty banana cake slice at the local cafe (yum!) to your dream family home.
An important part of getting the nod from a lender to receive credit is called a credit score (also known as a credit rating).
Let’s look at how credit scores are calculated, how to check your credit rating and ideas for improving a credit score.
What’s a credit score?
When you apply for credit (for example a credit card, personal loan or mortgage), a lender considers your credit score, which is a number based on your borrowing and repayment history, including how often you’ve applied for other credit products.
The number gives the lender information which helps them decide whether they accept your application, how much to loan you and at what interest rate.
How is a credit score calculated?
Here are some key credit score details typically considered by a lender when crunching the numbers:
- Your credit cards and store cards.
- Your debt (past and present), including any problems you’ve had repaying that debt.
- Your current credit limit.
- Loans (and loan enquiries) you’ve taken out for household, personal or family reasons; or to buy, renovate or refinance a property; or as a guarantor for someone.
- Accounts you’ve opened and/or closed.
Different agencies may use different ways for how credit scores are calculated.
Rule of thumb is the higher your score, the better your credit history, the smaller your perceived credit risk and the more likely you may receive approval.
How to check a credit score?
As your financial circumstances change over time, so too can your credit score.
So, it’s worth regularly keeping an eye on what your credit score is.
You can get your credit score from external credit reporting bodies (CRB), for example Equifax. To check your credit rating, you may need to provide information including your:
- Name
- Date of Birth
- Contact address
- Driver's licence number
You should receive your credit score report within 10 days.
What’s in a credit report?
Credit report details can vary depending on which agency you use, but here are examples of what you could expect when reading a credit report:
- Credit rating: a score from 0-1,200 (or 1,000), grouped into a tier which could be, for example, below average, average, good, very good or excellent.
- Key factors impacting your credit rating, which can include payment history and amounts owed.
- Credit products you currently hold such as any credit cards and their credit limits.
- Past applications you have made for credit.
- Repayment history, which can include any missed payments or hardship arrangements.
- Overdue debts that you have been listed as a default.
- Personal details such as your ID checks or name changes.
- Any credit report enquiries from lenders you’ve applied with.
How to improve a credit score
It’s never too late to fix a credit score. Just by checking, you now have a baseline to work from as you plan your credit score improvement.
Here are some ideas to consider for how to build a credit score:
- Good credit habits. Think about how often you’re applying for credit, because this could be a reason why your score could be lower than hoped for. Every time you apply for credit, your score falls as part of the lender reviewing your history. Bonus marks for repaying your credit products including your mortgage and credit cards on time.
- If you’ve had challenges with your lender about making repayments, talk with them about any possible ways that haven’t been considered yet to repay any outstanding debts. Having no outstanding debts can help boost your credit score.
- Request your credit report and double-check all its details are up-to-date and correct. If something doesn’t look right or is outdated, follow up with the credit provider because it could be impacting your credit score.
While a slip-up from a missed repayment could set your score back, there’s always the chance to bounce back.
Once you improve your number to where your goal is, keep putting that energy into maintaining your good financial habits.
Credit score FAQs
Does checking a credit score lower it?
While it’s important to regularly check your credit score, how you do so is equally significant.
Checking info on your own by requesting it from an agency, including Equifax, doesn’t impact your credit score.
You can check your credit score using this method as often as you like with the confidence of knowing you’re keeping on top of an important number in your financial management.
However, checking your credit score by applying for a credit product can affect your rating, because this application becomes part of your credit history and your score could temporarily lower as part of the process.
What’s a good credit score?
Credit scores are classed into different groups, for example below average, average, good, very good and excellent.
A good credit score depends on what you want to use it for, the credit product you hope to receive, and the lender you’re applying for credit from.
Because different agencies use different rating scales, what a good score is also depends on which agency you use.
If your credit report shows scores out of 1,200, generally a score above 661 is good. If your credit report shows scores out of 1,000, typically above 540 is good.
Can credit scores be different at the same time?
Different agencies calculate credit scores in different ways.
While this can happen when agencies have different credit ratings, it also can be because of how agencies interpret data which gives varied credit scores.
Agencies may also call the same tier a different name (a great tier in one place could be a very good tier in another).
For example, by getting ratings from 3 different agencies you could discover you have scores of 903/1,000 (very good tier), 834/1,000 (stable tier) and 1,055/1,200 (great tier) at the same time.
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