What is a good credit score?

What is a good credit score?

Whether or not you have a good credit score could mean the difference between borrowing the amount you want on a competitive interest rate and not being approved at all.

That’s why it’s important to understand what a good credit score is, and how you can work towards achieving – or retaining – one.

In Australia, there are two major credit reporting bureaus: Experian and Equifax.

Both Experian and Equifax have a credit scoring system that’s divided into five tiers:

  1. Excellent
  2. Very good
  3. Good
  4. Fair
  5. Poor/Below average

Borrowers with an Australian credit history will have a credit score that sits within one of these tiers, based on their past credit behaviour – whether good or bad.

The main difference between Experian and Equifax is that they follow slightly varied credit score scales. Equifax grades credit history between 0 and 1200, while Experian grades it between 0 and 1000.

This means that a “perfect score” is 1000 as reported by Experian, and 1200 as reported by Equifax.

Credit score tiers Experian Equifax
Excellent 800 – 1000 833 – 1200
Very good 700 – 799 726 – 832
Good 625 – 699 622 – 725
Fair 550 – 624 510 – 621
Poor/Below average 0 – 549 0 – 509

Source: Experian.com.au, Equifax.com.au.

Despite the variance in scales, and the likelihood that your numeric score will differ between the two credit bureaus, you will tend to find that your score generally sits within the same tier across both.

So, the question remains – what is a good credit score?

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 “good”. Anything above this is even better.

Lenders will favour the borrowers with the highest credit scores. This means that someone with a “good” credit score likely won’t be offered an interest rate as competitive as one they may offer a borrower who has a “very good” or “excellent” credit score.

What determines my credit score?

Credit scores are calculated based on both the positive and negative credit behaviours that are recorded on your credit history. Some of the factors that may be taken into consideration include:

  • Existing debts and the amount owing
  • Existing credit cards and their credit limit
  • Applications for credit products
  • Repayment behaviours
  • Late payments and defaults

How can I improve my credit score?

It’s always a good idea, for the sake of your financial wellbeing, to strive for an excellent credit score.

Whether you already have an excellent credit score that you want to ensure you retain, or you’d like to work on improving your score, there are actions you can make that just may have a positive impact.

Here are a few to get you started:

Regularly check your credit history

It’s worth getting into the habit of regularly checking your credit history. One of the reasons for this is that inaccuracies can occur, but you won’t be able to have them corrected if you don’t know they’re there. RateCity’s credit score hub makes it easy for you to check both your Experian and Equifax credit scores at once.

Ensure you pay your bills on time

Consider setting up a recurring reminder on your phone, or an automatic payment transfer through online banking, to ensure your credit card or loan repayments are made ahead of the due date. This will help you avoid relying on your memory alone to pay your bills on time.

Pay off existing debts

Focusing on paying down your existing debts before applying for more credit can help you demonstrate that you’re a responsible borrower.

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Learn more about credit score

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.

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.

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.

 

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.

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.

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. 

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. 

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. 

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. 

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. 

Does breaking a lease affect your credit score?

When you sign a lease, you’re agreeing to pay rent for a certain period. But what happens in case you need to break the lease midway? Does breaking a lease affect your credit score? 

If you’re planning to break a lease early, you might be required to give a certain amount of notice, pay two months' rent and an early termination fee, or you should be willing to forfeit your security deposit.

If you’re able to pay all dues before moving out, breaking the lease is unlikely to affect your credit score. However, if you leave without paying, your landlord could use a collection agency to collect any unpaid rent. Your landlord could even sue you, and if you lose, you may have to pay the dues and court costs. While landlords typically don’t report unpaid rent to credit bureaus, there’s a possibility that a collection agency will report it. Collection mentions can stay on your report for several years and may affect your credit score.

Furthermore, breaking a lease could create issues when you're looking to rent in the future. A future landlord could contact previous landlords or check your rental history, and any mention of a broken lease could make you appear as a high-risk tenant, putting the rental application at risk.

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.

Can a debt collector affect your credit score?

When a creditor is unable to contact you by phone or by sending you a formal notice in regards to outstanding debt, they will often outsource the job to a debt collector. The debt collector can try to reach you by phone, or they can attempt to contact you face to face. If they cannot get through to you by either method, they can only report back to the creditor but not directly report a payment default to the credit rating agency. So, can debt collectors affect your credit score? No, they cannot do so directly.

However, if you owe money, you have an obligation to return it or communicate your difficulty in doing so to the creditor as well as to any involved debt collector. If they cannot contact you, they can report a serious credit infringement against you, which may affect your credit score for many years. Creditors can also take the legal route, and a court judgment against you can also severely impact your credit score.

You should remember that debt collectors need to abide by specific rules and cannot harass you by repeatedly calling or visiting you, or by threatening to confiscate your possessions if you don’t pay up. Similarly, they cannot threaten to file a default against you, especially with a credit bureau.