What happens if you don't have a credit score?

What happens if you don't have a credit score?

If you’re a young Australian looking to take out a loan or credit card, you may be struggling with the fact that you haven’t built up a credit history.

This is not uncommon, as it can take some time to grow up your credit score. But it can be frustrating for Aussies who feel like they need credit to build credit.

So, what happens if you don’t have a credit score? And how can you build up your credit history without risking falling into debt? Here are some helpful tips to guide you through developing your credit score.

What a credit score does

When you want to borrow money from a bank in the form of a loan or credit card, the bank will need some sense that you can keep on top of your bills, pay back this money and not fall into debt. This is where a credit score comes in.

Your credit score indicates your trustworthiness as a borrower. It is based on your credit history, which is an outline of:

  • Money you’ve borrowed;
  • Any credit applications you’ve made; and
  • Paying your bills on time. 

A high score shows credit providers that you are a reliable borrower and should be able to pay back a loan in a timely way. Not only does this mean you are more likely to be approved for financial products, some providers reserve their most competitive interest rates for Australians with excellent credit scores. For example, someone with an ‘excellent’ credit score may receive a lower home loan interest rate than someone with only a ‘good’ credit score.

How to check your credit history and credit score

Your credit history is stored on your credit file and can be viewed through one of the Australian credit reporting bureaus. These include Equifax, Experian and Illion. Credit reporting bureaus allow Australians one free copy of their credit report each year, so if you’ve never looked your credit history, now is the time.

 Here is Equifax’s credit score scale:

  • 833 - 1200: Excellent

You’re a reliable borrower and among the top 20 percent of the credit-active population of Australia. Your odds of keeping a clean file are five times better than the average Equifax credit-active population.

  • 726 - 832: Very good

Although you may have had your share of financial misses or have not had time to build a credit history, you still have a decent score. Your chances of keeping a clean credit report are two times better than the average Equifax credit-active population.

  • 622 - 725: Good

Your odds of keeping a clean credit report are better than the average Equifax credit-active population. It’s less likely you will face an adverse event in the next 12 months.

  • 510 - 621: Average

It’s likely that you might experience an unfavourable event such as a default, bankruptcy or court judgment in the next 12 months.

  • 0 -509: Below average

It's more likely that you will experience an unfavourable event such as a default, bankruptcy or court judgment in the next 12 months.

There are some financial websites that do provide you with just your credit score. RateCity can help you to get a free copy of your credit score. All you’ll need is to provide some basic personal identification details, and your score will be sent to you.

How to grow your credit history from nothing

Whether you’re trying to get your first credit card, or looking to take out a car loan, there are a few ways you can grow your credit history and build up a credit score without borrowing credit.

  • Utilities bills. If you’ve moved out of home, or if your parents are keen to help you, try and have your name put on a utilities bill, such as gas or electricity. This is a simple way you can show banks you’re reliable with paying bills on time and begin to grow your credit score.
  • Phone plan. Perhaps you’re still on a prepaid phone plan or maybe you’re on your parent’s phone plan. One of the easiest ways you can start your credit history is to begin an independent phone plan under your own name. Just keep in mind that this is a financial responsibility, and not paying your phone bill on time can hurt your credit score. 

If you are comfortable borrowing credit, you may want to consider taking out a low-rate, low-fee credit card. These typically come with easier credit card eligibility criteria to meet, as well as lower rates, fees and credit limits to prevent you growing debt. If you can pay your credit card balance in full each statement period, this is one way you can seriously boost your credit history.

Just ensure you do your research around the eligibility criteria of any financial product you’re considering applying to. Read the product disclosure statement carefully to see any minimum income, employment and credit score requirements. This is crucial for every Australian to do, as applying for any financial product and being rejected will negatively impact your credit score.

Comprehensive Credit Reporting and positive information

Previously, a credit report will only show negative information, as well as basic facts around utilities or money you’ve borrowed. But what about your positive financial information? Australian banks, including the big four, are making the move to Comprehensive Credit Reporting (CCR) to include just this.   

CCR means that when credit providers supply credit bureaus with information about how their customers are managing loans, they will now supply both ‘positive’ and ‘negative’ information. Those with poor credit scores may be able to bounce back quicker thanks to CCR. Further, for those with very little credit history, it may also help you.

This positive information may include:

  • Making all your bill repayments on time for the past year.
  • More information added to files of those with little credit history, such as the type of credit account opened, the date it was opened, the name of the credit provider and current limit on the credit account.
  • Repeated behaviour taken into consideration more heavily than one-off missed payments.

Put simply, comprehensive credit reporting will reward Australians who always pay their bills on time and pay off debts in full, as this showcases a strong level of financial responsibility to credit providers.

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Learn more about credit cards

Do you need a credit card to get a loan?

You do not need a credit card to get a loan, but you usually need to have a credit history. Without a credit history, a financial institution cannot assess your ‘credit worthiness’, or your capacity to pay off the loan.

If you don’t have a credit card, your credit history can reflect any record of paying off an asset. Without any credit credit history, you’re limited in the type of loans you can apply for. But you may be able to obtain a secured loan against an asset. For more information on improving your credit score, go here

How easy is it to get a credit card?

For most Australians, there are no great barriers to applying for and getting approved for a credit card. Here are some points that a lender will consider when assessing your credit card application.

Credit score: A bad credit score is not the be all and end all of your application, but it may stop you being approved for a higher credit limit. If your credit score is less than perfect, apply for the credit limit that you need, rather than the one you want.

Annual income: Most credit cards have minimum annual income requirements. Make sure you’re applying for a card where you meet the minimum.

Age & residency: You need to be at least 18 years old to apply for a credit card in Australia, and most require that you are an Australian citizen or permanent resident. However, there are some credit cards available to temporary residents.

How do credit cards work?

Think of credit cards as a short-term loan where you use the bank’s money to buy something up front and then pay for it later. Unlike a debit card which uses your own money to pay, a credit card essentially borrows the bank’s money to fund the purchase. When you apply for a credit card, the bank assesses your income and assigns you a credit limit based on what you can afford to pay back. At the end of each billing cycle, which is usually monthly, the bank will send you a statement showing the minimum amount you have to pay back, including any interest payable on the balance.

What is a credit card?

A credit card is a payment method which lets you pay for goods and services without using your own money. It’s essentially a short-term loan which lets you borrow the bank’s money to pay for things which you can pay back – potentially with interest – at a later date. Credit cards can also be used to withdraw money from an ATM, which is known as a cash advance. Because you’re borrowing money from a bank, credit cards charge you interest on the money you use (unless you repay the entire debt during the interest-free period). When you apply for a credit card, the bank gives you a credit limit which sets the maximum amount you can borrow using your card. Credit cards are one of the most popular methods of payments and can be a convenient way of paying for goods and services in store, online and all around the globe.

How do you pay off credit cards?

The best way to pay off a credit card bill is to set a realistic spending budget and stick to it. Each month, you’ll get a credit card statement detailing how much you owe and how long it will take to pay off the balance by making minimum repayments. If you only make the minimum repayments, it will take you years to pay off your outstanding balance and add extra costs in interest charges. To avoid any extra charges, you should pay the entire bill. 

How do you use credit cards?

A credit card can be an easy way to make purchases online, in person or over the phone. When used properly, a credit card can even help you manage your cash flow. But before applying for a credit card, it’s good to know how they work. A credit card is essentially a personal line of credit which lets you buy things and pay for them later. As a card holder, you’ll be given a credit limit and (potentially) charged interest on the money the bank lends you. At the end of each billing period, the bank will send you a statement which shows your outstanding balance and the minimum amount you need to pay back. If you don’t pay back the full balance amount, the bank will begin charging you interest.

How do you use a credit card?

Credit cards are a quick and convenient way to pay for items in store, online or over the phone. You can use a credit card as a cashless way to pay for goods or services, both locally and overseas. You can also use a credit card to make a cash advance, which gives you the flexibility to withdraw cash from your credit card account. Because a credit card uses the bank’s funds instead of your own, you will be charged interest on the money you spend – unless you pay off the entire debt within the interest-free period. If you pay the minimum monthly repayment, you will be charged interest. There are many different credit card options on the market, all offering different interest rates and reward options.

What is a balance transfer credit card?

A balance transfer credit card lets you transfer your debt balance from one credit card to another. A balance transfer credit card generally has a 0 per cent interest rate for a set period of time. When you roll your debt balance over to a new credit card, you’ll be able to take advantage of the interest-free period to pay your credit card debt off faster without accruing additional interest charges. If your application is approved, the provider will pay out your old credit card and transfer your debt balance over to the new card. 

How many numbers are on a credit card?

The numbers on your credit card actually follow a universal standard which is used to identify specific functions. Each credit card has a different amount of numbers. Visa and Mastercard have 16, American Express has 15 and Diner’s Club has 14. 

The first number on a credit card always identifies what type of credit card it is. Visa cards start with a 4, whereas Mastercard starts with a 5 and American Express with a 3. The remainder of the digits represent the account number, including the last number which is used to verify that your credit card is actually valid. 

Credit cards also have additional verification numbers, which are mainly used when the card isn’t present for phone and online purchases. These are the three-digit numbers on the back of Visa and MasterCard or the four-digit numbers on the front of an American Express card.

How do you apply for a credit card?

You can apply for a credit card online, over the phone or in person at the bank. Once you’ve compared the current credit card offers, the application process is quick and easy. Before you get your application started, you’ll need to gather your personal information like proof of ID, payslips and bank statements, proof of employment and details of your income, assets and liabilities. To be eligible for a credit card, you’ll need to be an Australian citizen over 18 and earn a minimum of $15,000 each year. Once you’ve applied for a credit card, you should get a response fairly instantly. If your credit card application has been approved, you should receive a welcome pack with your new credit card within 10-15 days.

How do you cancel a credit card?

It’s important to cancel your old cards to avoid any additional fees. Unless you’re doing a balance transfer, you’ll need to pay the outstanding balance before you cancel your credit card. If you’ve opted for a card with reward points, make sure you redeem or transfer the points before you close your account. To avoid any bounced payments and save yourself an admin headache, redirect all your direct debits to a new card or account. Once you’ve done all the preparation, call your bank or credit card provider to get the cancellation underway. Once you receive a confirmation letter, destroy your card and make sure the numbers aren’t legible.

Is instant approval possible for credit cards?

Instant approval may be possible – but please note that the term may be misleading. “Instant” approval tends to mean that when you apply online the lender will let you know the likeliness of your eligibility for a credit card within 60 seconds of receiving your application.

Can I get a credit card with bad credit?

Yes, some lenders will provide credit cards to Australians with bad credit scores. It depends on the provider's individual lending criteria and whether you’ve presented your personal finances to show you’re an ‘ideal’ applicant.

Are there credit cards for students?

Yes, there are credit cards available with students in mind. These can help young Australians to build their credit report and learn crucial life skills around budgeting and managing personal finances.