In Australia, understanding your credit score is vital for financial health and securing credit products. Governed by the National Consumer Credit Protection Act (NCCP) and Australian Securities and Investments Commission (ASIC) regulations, your credit score influences your ability to obtain loans and credit cards.
The NCCP Act and ASIC guidelines promote responsible lending practices and lenders are obligated to follow this process and must verify that a loan / credit provided is suitable for your individual financial circumstances.
A credit score is a numerical representation of your creditworthiness, based on your credit history. Generally ranging from 0 to 1000 (as per Equifax and Experian), a higher score indicates a lower risk to lenders. Credit scores are categorised into different levels, ranging from below average all the way to excellent. Every credit reporting agency will have a slightly varying range that they consider to be below average, average, excellent etc. Your credit score helps lenders decide whether to approve your credit applications and what terms to offer.
Generally, if you have a credit score above the 660 mark you are in a good position, more than 850 indicates you are in a very solid positive position.
Why is a Good Credit Score Important?
- Easier Access to Credit: Higher scores improve your chances of loan approval.
- Better Negotiation Power: High scores can help you negotiate better loan terms.
- Lower Insurance Premiums: Some insurers use credit scores to determine premiums, leading to lower costs for those with high scores.
Key Factors Influencing Your Credit Score
Several factors influence your credit score:
- Payment History: how efficiently you were able to repay any credit cards or loans. Timely bill payments positively impact your score.
- Credit Utilisation Ratio: Using a small percentage of your available credit limits boosts your score.
- Length of Credit History: Longer credit histories generally enhance your score.
- Types of Credit: Diverse credit types (e.g., credit cards, loans) can improve your score.
- Recent Credit Inquiries: Multiple recent credit applications can lower your score.
Tips for Monitoring and Improving Your Credit Score
You can obtain your Credit report from Equifax, Experian, or Ilion. Most agencies by law are required to show your credit score to you. Monitoring your credit score can be important if you are looking to get finance / credit soon. Here are tips to improve your credit score:
- Timely Bill Payments: Ensure all bills and credit accounts are paid on time.
- Limit Credit Applications: Avoid applying for multiple credit accounts within a short period.
- Pay Outstanding Debt: Prioritise and payoff any outstanding debts.
- Budget: Create a budget and stick to it.
Credit scores can be used when looking to get a loan. If you have a good credit score you are in a better position to be eligible for a loan from majority of lenders.
If you looking to get finance but not sure what your credit position looks like, speak with the trusted team at Trusted Financial Choice today.