What is Equifax One Score, and how does it change credit scores?

What is Equifax One Score, and how does it change credit scores?

Australian credit reporting bureau Equifax has rolled out a new credit score system and it could mean your credit behaviours are better reflected.

The new scoring system, Equifax One Score, aims to provide greater consistency and reliability than other scoring systems.

It was developed to in response to:

  • Comprehensive Credit Reporting (CCR) reaching critical mass;
  • The Australian consumer credit landscape moving away from credit cards in favour of Buy Now Pay Later products, and;
  • A global pandemic leaving missing Repayment History Information (RHI) that could affect credit files for months or years to come.

Equifax claims that as consumers begin to understand and accept that Equifax One Score is a dependable assessment of their creditworthiness, they will increasingly learn to leverage the value of data in order to negotiate on credit rates and terms.

While the overall concept and purpose of Equifax One Score is much the same as other credit scores, there are a number of key differences that make it unique.

What makes Equifax One Score different to other credit scores?

1. It factors in up to five years of credit enquiry and defaults trends

Equifax One Score was built using both short and longer-term RHI, plus up to five years of credit enquiry and defaults trends.

Because of this, lenders are able to assess borrowers’ creditworthiness based on a broad range of data, instead of being limited by data that may be missing or not useful – such as changes in payments due to mortgage deferrals in the time of the COVID-19 pandemic.

2. It draws on alternative data sources such as Buy-Now-Pay-Later (BNPL) services

In the past, individuals may not have had a credit history or credit score until they had taken out some kind of conventional personal finance product, like a credit card.

However, Equifax’s new scoring system draws on alternative data sources, including BNPL services like Afterpay, Zip, Klarna and many others.

For this reason, Equifax One Score can be useful in determining the creditworthiness of thin-file credit applicants who have used BNPL services. A thin-file applicant is a consumer with little to no credit history – often young adults.

The issue thin-file applicants might normally face is that lenders may find it difficult to determine their credit behaviours and in turn either deem them too much of a risk and reject their application, or offer them a high interest rate that reflects the level of risk.

3. It can help provide consumers with greater accuracy and transparency around how decisions are made

According to Equifax, the new system provides consumers with personalised reason codes for credit application outcomes, allowing applicants to better understand why their credit application was accepted or denied.

This could give those who have had a loan application rejected a better opportunity to take actionable steps to improve their creditworthiness before reapplying for credit.

What will this mean for my credit score?

The rollout of Equifax One Score could potentially improve your credit score, reduce your credit score or not have much of an impact on your credit score at all.

For example, if you are a responsible and reliable borrower when it comes to traditional credit products (such as credit cards and personal loans), and this transfers to your track record with BNPL services, then Equifax’s new scoring system may not significantly impact your credit score – or you could even see an improvement.

If you have a habit of allowing your BNPL payments to fall behind or get out of hand, then you could see your credit score dip in response to the rollout.

And if you have a thin credit file, but are a responsible user of BNPL services, you could see your chances of credit approval strengthen as lenders are given a better picture of your positive credit behaviours.

What can I do to ensure my credit score remains in good shape?

Whether or not the introduction of Equifax One Score has an impact on your credit score, working on your credit habits could put you in a better position to achieve, or maintain, a good credit score.

Some credit habits worth harnessing include: 

  • Regularly checking your credit score – RateCity’s credit score hub can provide you with fast access to both your Equifax One Score and Experian credit score for free. It’s worth getting into the habit of regularly checking your credit history because inaccuracies can occur, and you won’t be able to have them corrected if you don’t know they’re there.
  • Limiting your usage of BNPL services – Because BNPL services split your repayments into smaller segments of the total cost of the purchase, it can sometimes seem like less of a commitment than it really is. The issue you could face is overcommitting to repayments, as even small amounts can quickly add up. If you do overcommit and don’t have the funds to make the repayments when they are due, you may not only be stung with late fees but also risk damaging your credit score. For this reason, it’s important to treat BNPL services much the same as any other credit product.
  • Demonstrating consistently positive credit behaviour – Equifax One Score factors in up to five years of credit events. This means that negative events such as defaults can affect your credit score for years to come. It’s worth focusing on consistently paying down your debts in order to avoid getting into financial strain and risking missed payments. If you need help managing your debt, consider reaching out to financial counsellor via the National Debt Helpline.

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Fact Checked -

This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.

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Learn more about credit score

Does a credit score check impact your credit score?

You may have heard that when a bank or lender performs a credit check, that it can impact credit score. But checking your own credit score isn't the same, and won't affect your credit score in the same way.

There are two types of credit checks that can be recorded in your credit history: hard credit checks and soft credit checks.

Hard credit checks occur when you apply to borrow money from a bank or lender, such as when you apply for a credit card or loan. A soft credit checks occur when your credit file is accessed outside of applications to borrow money, such as when you check your own credit score or credit history.

Checking your credit score is a request for information and not an application to borrow money, so it should not affect a lender’s decision to accept or decline your credit applications. As such, it's a soft credit check, and is unlikely to affect your credit score, positively or negatively.

 

What are some advantages of a good credit score?

You should know about the advantages of credit score improvement as there are many occasions when having a good score is helpful. If your credit score is categorised as good, very good, or excellent, it can indicate you have strong borrowing power. This may encourage lenders to give you special discounts on interest rates and other loan terms. You may also find it easier to get approved for a credit card or a property rental. You can also try to negotiate terms using your superior credit score as leverage.

A high credit score indicates that you are financially responsible, but it requires you to be disciplined. If you currently have a good credit score, you still need to remember not to apply too often for credit cards or loans as these can quickly pull down your score. On the one hand, you may have better access to credit, but your good financial habits mean that you may not need to access this credit. Having some credit products can help build up your credit report, and therefore your credit score. You would just need to keep the debt and limits to a minimum and pay the bills on time. It’s never advisable to take out credit that you can’t afford to pay as it negatively impacts your credit history.  Even if you have a good credit score, you can always improve it further.

What is a good credit score?

Across Australia's major credit score providers, Experian and Equifax, there are five tiers, ranging from "below average" to "fair" to "good", "very good", and "excellent", with your score designating where you sit. As the tiers suggest, an Experian credit score between 625 and 699, and an Equifax credit score between 622 and 725, is technically considered to be in the range of "good". Anything above this is even better.

However, lenders will typically favour the borrowers with the highest credit scores which means that applicants with a "good" credit score may not be offered an interest rate as competitive as one offered to a borrower with a "very good" or “excellent” credit score.

Does borrowing money affect credit score?

Whether it’s through a home loan, a personal loan, or a credit card, borrowing money will affect your credit score. Taking on a home loan or a credit card may have a positive impact on your score, but too many loan applications can bring your credit score down.  

Every time you apply for credit, an inquiry is performed against your name. Too many inquiries can reflect negatively on your credit report, and if your loan application is rejected it will negatively impact your credit score.

How you handle your debt can also make a big difference. As long as you make timely payments you may be able to improve your credit score and overall creditworthiness. However, any missed or delayed payments will likely result in a negative impact on your credit score.

Why should I check my credit score annually?

You may not need to get your free credit rating every year, but it can help you stay informed. A yearly free credit report can help Australians keep track of the impact of various financial transactions on their credit score.

Your credit score helps inform financial organisations, particularly lenders, about the sort of payer you are. Depending on how you've paid down debt in the past, it will have affected your credit score in various ways. In Australia, the inclusion of Comprehensive Credit Reporting (CCR) means that you can find out which transactions affect your credit score positively, as well those that have a negative impact.

Because of this, you may want to consider getting a free credit report once a year irrespective of whether you’re planning to apply for a loan or take on other debt. Checking your credit report can tell you if there are errors in your credit file, which affect your credit score and need to be corrected.

What if your credit score has dropped for no reason

The importance of checking your credit score regularly is hard to overstate as the changes may not be as relevant to your life, and there may be the occasional error, but what should you do if it drops for no reason?

Credit reporting agencies calculate your credit score based on the information they receive from lenders, banks, credit card providers and utility companies, among others. This report takes into account both the credit enquiries these companies make, as well as your payment history with them, and may include other factors. But because some reports may come in at different times, delays can appear like drops. 

Suppose you missed paying a bill while on holidays and the supplier couldn’t reach you, or something like it -- in this instance, the provider may report the default to the credit reporting agency, which can cause your credit score to fall when the credit reporting agency eventually sees the information. Because of an obvious delay, the drop can seem random.

Regularly checking your credit score and the transactions that have appeared can provide some understanding as to why a credit score drop might have occurred, and even provide some understanding as to how you can fix the drop, improving your credit score in the process. 

How regularly does your credit score change?

There are plenty of things that can affect your credit score, but when they'll impact it can vary wildly, and often depend on when the information has been passed on.

Every credit enquiry is noted on your credit file, and this impacts your credit score. Thanks to Comprehensive Credit Reporting (CCR), it means you both positive and negative transactions can impact your score, but so, too, can the frequency. For instance, if you apply too often for credit cards or apply with multiple lenders for a home loan and aren't successful, you may see a decline. 

How long this information take to pass on is an important question, but the length of time often depends on the credit reporting agency. Some transactions can take a small amount of time, while others take much longer. For that reason, it's important to check your credit history regularly so you can be more aware of what your credit score looks like, and if you need to correct any of the statements made on it. 

Where can I check my credit report for free?

While you can get a free credit report in multiple ways, RateCity's own credit checking system allows you to find your score from two credit history systems, Experian and Equifax. 

When you request your free credit report, you'll likely need to supply some personal information, such as your name, contact details, and a personal identification, such as a drivers license number or another form of identification. 

Not only does a credit report show credit score, but it usually often contains positive and negative credit transactions covering the past five years of payments. 

Do landlords check credit scores?

For landlords, credit score checks can tell if a potential tenant has a history of delayed or missed rent payments. Usually, a poor record of repayments is likely to result in a low credit score. Also, your credit history may include information from tenancy databases such as the number of times landlords have inquired about your credit score. 

If there are too many inquiries within a short time, landlords may conclude that you have had issues renting in the past.  However, there is no rule as to when landlords check your credit score. Some might check every time they receive a tenant’s application. In some cases, landlords may even rent out their property to tenants with a poor credit history if they can submit additional documents or sufficiently explain their situation and how they are trying to address it.

 What credit score do landlords look for?

Landlords may look for issues relating to repayment rather than a specific credit score, although a low credit score probably suggests that you’ve had repayment issues. In general, if your credit score is categorised good, very good, or excellent - which corresponds to an Equifax credit score range of 622 - 1,200, landlords may not scrutinise your credit history too closely.

Why your credit score may differ between Experian and Equifax

Two of Australia's biggest credit reporting bureaus are Experian and Equifax, and while they both do the same thing, it’s not uncommon to find that your credit score can differ significantly.

Firstly, Experian and Equifax each have their own credit reporting algorithms to interpret and quantify your personal credit history. That means that while they do the same sort of thing -- credit tracking and reporting -- they may not handle it in the same way. Your credit history may therefore be similar, but not identical between Experian and Equifax.

While neither reveals exactly how they work, each also likely work in different time frames, which means your credit history may be viewed differently between the two. One could look at the most recent, while another might be weeks apart. For this reason, scores can vary.

Finally, there are different scales at which they work, and depending on the types of transactions your credit history has seen, this may impact the overall result slightly different, thus making the scores different. 

What can impact my credit score?

Your credit score isn't set in stone and can change with every financial decision and action you take. While you checking your score is a soft check and won't impact the result, payments and other actions can affect the score. 

The very things that can impact your credit score include your payment history (late or on time), the age and type of credit you have and owe, your debt balance (both current and delinquent, if any), recent payment behaviour, the credit available to you presently, and if you have any court judgements or actions resulting form bankruptcy.

Australia's Comprehensive Credit Reporting (CCR) also tracks your positive payments, and allows your credit score to be impacted positively, as well. 

Do you need a credit score to rent a property?

A credit score is used by banks and lenders to understand your financial health and wellbeing, but you may not be aware that it's used as a way for landlords to understand whether or not it's risky to get into a financial relationship with you.

When you’re looking to rent a property, your landlord may check your credit history to get a sense of your capability to pay rent in a timely fashion. Landlors may look at your history of repaying debts, and this as a benchmark to understand the likelihood of you paying your rent on time, or not.

 

Can a bad credit score affect rental applications?

A landlord may check your credit score to work out how trustworthy you are, and whether you'll pay your rental obligations on time. So, can a bad credit score cause you to miss out on renting property?

When looking at your credit score for rental applications, landlords may not see a low score as a reason to instantly reject applications. Some may be more generous, and could be willing to consider a tenant with a lower credit score, or even request some form of additional deposit to act as security against possible future problems.

Alternatively, you may want to consider asking a guarantor to co-sign your lease, which gives the landlord peace of mind as they have an alternate payment source if you cannot make payment.

Can I check my credit score without a driver's license?

In Australia, your driver’s license is the preferred identification document for credit reporting agencies. This means you may not be able to confirm your identity using another document, such as a proof-of-age card. You may have genuine reasons like concerns over identity theft for not wanting to provide your driver’s license number. Unfortunately, most credit bureaus won’t allow people to check their credit score without a driver’s license. 

If you don’t have a driver’s license, there’s a good chance you haven’t applied for credit in the past and don’t have a credit score at all. In case you are concerned about identity theft, credit reporting agencies can offer you paid packages that include insurance against identity theft. Such packages may also include monthly credit score checks or alerts whenever your score is updated.