How To Check Your Credit Score

Applying for a loan or line of credit? Your credit score will play a pivotal role in determining your chance of approval.

Lenders use an individual’s credit score when deciding whether to grant or deny loans, how much to lend, and at what interest rate. Regularly checking your credit score and keeping it up to date will help to better understand your likelihood of having your loan approved, possible loan terms and interest rates, and help negotiate better deals. 

What is a credit score?

A credit score measures a person’s creditworthiness, indicating how risky or safe it would be to lend money. It is a number between 0 and 1,000 – the higher the credit score, the more likely a credit request is approved. The average credit score in Australia is 855.

A credit score is based on personal and financial information (particularly borrowing and repayment history) in an individual’s credit report. Creditors and lenders consider a credit score when an individual opens a new account, applies for a loan or mortgage, or seeks a credit card. It helps lenders and creditors, like banks, credit card companies, utilities, and telcos, determine how much they will lend and at what interest rate.

How is a credit score calculated? 

A credit score is calculated based on different factors in a person’s credit history. These factors include repayment history for loans or credit cards (e.g., whether payments were late, and the frequency of missed payments), a summary of borrowing history (e.g., how much was owed), and whether any credit accounts were made delinquent. 

In Australia, credit reporting agencies calculate a credit score, which banks and lenders generally use when running credit checks. Australia’s three largest credit reporting bodies are Equifax, Experian, and Illion.

When calculating a credit score, credit reporting agencies generally review:

• Payment history (past and present debt, repayment issues)
• Current credit limit
• Credit utilisation (how much available credit is being used)
• Credit age (how long past and present credit accounts have been open for)
• Different types of credit (e.g. credit cards, store cards)
• Number of loan enquiries (how many accounts have been opened/closed, purpose of loan) 

How to check your credit score

You can check your credit score by providing identification documents, such as a driver’s licence, a passport, or a Medicare card, to one of the above credit reporting agencies. These online sites allow individuals to check their credit score reports for free once every three months.

It’s important to note that each agency may hold different information, and you can have a credit score report with multiple agencies.

Why check your credit score report?

Regularly checking your credit score report will avoid outdated information and help you make better financial decisions. The information on an individual’s credit score report can determine eligibility for a loan, whether they qualify for better interest rates, and the flexibility of loan terms.

Checking your credit score report before applying for a line of credit or a loan will ensure the best chance for approval and loan terms. For example, lenders usually prefer a credit score of at least 600-620 if you are applying for a car loan. If your score is 600 or lower, you may be looking at a car loan with interest rates of 10% or more. If you’ve checked your credit score before applying for the car loan, you can consider improving your score to at least 670, which can lower interest rates dramatically to 5.49%. 

According to a 2022 study by Finder, 73% of the Australian population were unaware of their credit scores, and 48% never checked their credit score. A common misconception is that checking your credit score will affect it – this is wrong. Checking your credit score is referred to as a “soft enquiry”, meaning that potential lenders cannot see the enquiry when reviewing your credit report. 

What is a ‘good’ credit score?  

In Australia, credit reporting bodies grade credit scores slightly differently, so what is considered ‘good’ may vary. However, a ‘good’ credit score is typically 660 and above. Credit scores can be split into five categories: Excellent (≈ 800 to 1,000), Very Good (≈ 700 to 800), Good (≈ 600 to 700), Average (≈ 500 to 600), and Below Average (≈ 500 and below).

If an individual's credit score is below ‘good,’ they can attempt to improve it. A credit score is not fixed – it reflects how well a person adheres to credit and loan agreements at any given time. To repair a credit score, you can: 

• Pay bills on time
• Keep old accounts open
• Limit new credit applications
• Pay off debt regularly
• Dispute any inaccurate information on a credit report

Whether you’re applying for a personal loan, home loan, credit card, or a type of line of credit, checking your credit score is vital. As mentioned, it’s free to check your credit score every three months to determine the likelihood of approval and identify any inaccurate information.

If you’re applying for a loan or credit, get in touch with your local broker will ensure that your credit score is up-to-date and give you the tips and tricks to get the highest credit score possible before applying. Before You Loan is powered by 12,300+ of Australia’s most experienced finance and mortgage brokers, each an expert on the ins and outs of securing the best possible loan, starting with a good credit score.