What does your credit score really mean?
LENDERS look at your credit score or credit rating, which appears in your credit report, to work out if they should lend you money or give you credit.
Here we explain how your credit score works and what you can do to improve it. What is a credit score?
Your credit score is a number based on an analysis of your credit file, at a particular point in time, that helps a lender determine your credit worthiness.
It is used by credit providers, such as banks and credit unions, to help them decide whether to lend you money, how much they will lend you and may
sometimes influence what interest rate is offered to you. How is your credit score calculated?
Credit reporting agencies collect your financial and personal information and document it on your credit report.
This information is then used to calculate your credit score, which includes:
■ Your personal details (such as age and where you live)
■ The type of credit providers you have used (e.g. bank or utility company)
■ The amount of credit borrowed
■ The number of credit applications and
enquiries you have made
■ Any unpaid or overdue loans or credit
■ Any debt agreements or personal insolvency agreements relating to bankruptcy
What does my credit rating mean?
Depending on the credit reporting agency used to calculate your score, it will be a number between zero and 1200 or zero and 1000.
The number is rated on a five-point scale (excellent, very good, good, average and below average). The position of your credit score on this scale helps lenders work out how risky it is for them to lend to you:
■ Excellent - you are highly unlikely to have any adverse events harming your credit score in the next 12 months
■ Very good - you are unlikely to have an adverse event in the next 12 months
■ Good - you are less likely to experience an adverse event on your credit report in the next year
■ Average - you are likely to experience an adverse event in the next year
■ Below average - you are more likely to have an adverse event being listed on your credit report in the next year — Information from the Australian Securities and Investments Commission