Every time you apply for a loan, lenders check your credit history. Here’s how credit scores work in Australia, what affects yours, and how to check it for free.
A credit score is a number that sums up your credit history, giving lenders a quick way to judge how likely you are to repay money you borrow.
Lenders check it when you apply for a home loan, car loan, credit card, buy now, pay later account, and even some phone and energy plans.
Who keeps your credit report
Your credit history is held by credit reporting bureaus. The main ones in Australia are Equifax, Experian and illion. Each keeps its own credit report on you and calculates its own score, so your score can differ between them.
Your credit report includes the credit accounts you hold, the limits on them, applications you have made, any overdue debts and serious problems such as bankruptcy.
What affects your score
Since 2018, Australia has had a system known as comprehensive credit reporting. Before that, credit reports mostly recorded negative events, such as missed payments. Now they also include positive information, such as a record of on-time repayments over the past two years.
The most important factor is whether you pay on time. Repayments more than 14 days late can be recorded on your report, and overdue debts of $150 or more that go unpaid for 60 days can be listed as defaults, which can stay on your file for five years.
Making lots of credit applications in a short time can lower your score, because it can suggest financial stress.
Having very large credit limits, even if you don’t use them, can also count against you when applying for a home loan, because lenders consider how much you could borrow.
How to improve it
Paying bills and loan repayments on time is the most effective way to build a good score. Setting up automatic payments can help.
Limiting the number of credit applications, closing credit cards you don’t use and paying down debts also help.
A thin credit file can make it harder to borrow, so people who have never had credit may have lower scores until they build a history.
Checking your report
You’re entitled to a free copy of your credit report from each bureau every three months. You can request it through their websites.
It’s worth checking for errors, such as debts that aren’t yours, which can be a sign of identity theft. You can ask the bureau or the lender to correct mistakes, and if that fails, complain to the Australian Financial Complaints Authority.
Be wary of paid “credit repair” services. They can’t remove accurate information from your report, and anything they can do, you can usually do yourself for free.
