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.

What happens if I have a bad credit score?

If you have a bad credit score, you might encounter two main problems. First, the lower your credit score, the more likely you are to be rejected when you apply for a loan or any other credit product. Second, if your application is accepted, the less likely you are to qualify for the lowest interest rates.

What should you do if your credit card is compromised?

Credit card fraud is a serious problem. If your credit card is compromised and you’re wondering what to do, here are a few precautionary steps to take.

Contact you credit provider – Get in touch will your credit card provider. If you feel your card has been compromised, you should be able to lock or block it.

Monitor your accounts – Keep an eye on your credit card accounts. Any unauthorised transactions could be a sign your credit card has been compromised.

Check your credit rating – It’s also important to check your credit rating, to ensure you’re not a victim of identity theft or some other financial mischief.

Why should I check my credit rating?

There are two reasons you should check your credit rating: so you have a better understanding of your financial position, and so you can take action (if necessary) to improve your credit rating.

Lenders use credit ratings or credit scores to assess loan applications. The higher your score, the more likely you are to get approved, and the more likely you are to be charged lower interest rates and lower fees. Conversely, the lower your credit score, the less likely you are to get approved, and the more likely you are to be charged higher interest rates and higher fees.

Can I get a credit card on part-time/casual work?

Yes, as credit card providers look at your annual income amount as well as your occupation. Minimum income requirements tend to be between $30,000 – $40,000 for standard and rewards credit cards, however low income credit cards can have minimum income requirements as low as $15,000 per year.

Why do different credit reporting bureaus use different scores?

The reason Equifax, Experian and Illion use different scores is because they are independent companies with their own different methodologies. As a result, a score of, say, 700 would mean different things at different credit reporting bureaus.

However, the one thing they have in common is that they divide their scores into five tiers. So if you receive a tier-two credit score from one bureau, you will probably receive a tier-two score from the others, as well.

How to get a credit card for the first time

A credit card can be a useful financial tool, provided you understand the risks and can meet repayment obligations.

If you’re a credit card first-timer, review your options. Think about what kind of credit card would suit your lifestyle, and compare providers by fees, perks and repayments.

Once you’ve selected a card, it’s time to apply. Credit card applications can generally be completed in store, online or over the phone.

When you apply for a credit card for the first time, you must meet age, residency and income requirements. As proof, you must also provide documentation such as bank account statements.

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. 

What's the best credit card for rewards?

There is no one-size-fits-all best rewards credit card. It's best you research what type of rewards program you'd like, as well as the fees, interest rate and conditions associated with those types of cards before making a choice. 

Rewards credit cards can also come with high annual fees that may end up nullifying the rewards, so think how often you use the card to decide whether the benefits outweigh the extra cost for you. A card with a lower annual fee might require a lot of spending to get any useful rewards, while another card with a higher annual fee might need fewer purchases to get a reward. 

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 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.

How to get money from a credit card

You can get money from a credit card, but generally it will cost you.

Withdrawing money from a credit card is called a cash advance, as it operates more as a loan than a simple cash withdrawal. Because it is a loan, you may be charged interest on your cash advance as soon as you make the withdrawal. Interest rates are also usually much higher for cash advances than standard credit card purchases.

In addition to the interest rate, you may also be charged a cash advance fee. This could be a flat rate, or a percentage of your total cash advance. If you are considering a cash advance, make sure to add up how much it will cost you before committing.

What should you do when you lose your credit card?

Losing your credit card is a serious situation, and could land you in financial trouble. Here is a simple guide detailing what to do when you lose your credit card.

Lock you card – Contact your provider and inform them about your lost credit card. From here lock, block or cancel your card.

Keep track of transactions – Look out for unauthorised credit card transactions. Most banks protect against fraudulent transactions.

Address recurring charges – If your card is linked to recurring charges (gym membership, rent, utilities), contact those businesses.

Check credit rate – To ensure you’re not the victim of identity theft, check your credit rating a month or two after you lose your credit card.