A Guide to Checking and Understanding Your Credit
Credit reports, credit scores, soft and hard inquiries, debt-to-income ratios… it’s confusing out there, we know. We’re here to help you get wiser about your credit, which means understanding the basics through to being aware of new rules and legislation that affect credit reporting in Australia.
It’s important to wrap your head around this stuff and build a healthy credit score because it can save you money in the long run and make it easier to secure funding when you need it most.
How to understand your credit score
Your credit score, put simply, is a number that demonstrates how well you manage your finances. It helps a lender determine how creditworthy you are. Credit providers such as banks and lenders use your credit score to determine whether or not it’s a good idea to lend you money, as well as how much money is safe to lend you. The score can also determine your interest rate.
How credit bureaus calculate your credit score
Each credit bureau collects your personal and financial information and details it on your credit report. They take all of this information and come up with your credit score. These factors include but are not limited to:
- Your personal information such as your name, address, date of birth, etc
- Your total amount of credit already borrowed
- The types of credit providers you’ve had experiences with, such as utility companies or banks
- Whether or not you have any overdue, unpaid or defaulted credit or loans
- The amount of credit enquiries and applications you have on your record
- Whether or not you have made debt agreements in the past, or any other agreements related to filing for bankruptcy
Australia has four main credit bureaus: Experian, Equifax, illion and the Tasmanian Collection Agency.
What your credit score means
Since each credit bureau uses a different scale to report your credit score, you’ll end up with a number from zero to either 1,000 or 1,200. Keep in mind that you may have multiple credit scores, and WisrCredit will present you with your Equifax and Experian score. Both scores use a five-tier grading system, covering categories similar to below average, average, good, very good and excellent. Where your credit score falls in this range helps financial institutions decide how risky it is to lend money to you.
- Excellent – An excellent credit score means that it is very unlikely that you will get into any trouble that could drop your credit score in the next year.
- Very Good – A very good credit score means that it is unlikely that you will get into any trouble that could make your score slip.
- Good – A good credit score means that it is slightly more unlikely than likely that you will get into trouble with your credit in the next 12 months.
- Average – An average credit score means that it is likely that you will have issues with your credit in the next year.
- Below Average – A below average credit score means that it is extremely likely that you will get into trouble in the next year.
How to check your credit score
Did you know that you can check your credit score for free, and as often as you want? One of the fastest and easiest ways to get your credit score is to use WisrCredit.
You only need to provide limited information such as your full name, date of birth, drivers licence so we can ID you and some additional personal information such as your living arrangements.
Get your info ready and give it a crack!
How to build good credit
Building your credit isn’t something that will happen overnight, but don’t let that get you down. You can take small steps over time to improve your score. Change starts with understanding your score and its movements.
Your credit score can fluctuate depending on your activities. In some cases, your score can change even if you haven’t done anything at all. Weird, right? Factors that could cause your credit score to rise or drop include:
- You applied for credit cards or a new loan
- Something expired and fell out of your credit reporting period
- Your credit limit changed on a credit card or loan
- You closed out a line of credit or loan
- A creditor added some new information
- You fell behind and made late payments
- You defaulted on your payments
To improve your credit score, you want to take a good, hard look at your financial situation. You can identify problems and look for ways to fix them. Once you get a hold of your finances, your credit rating should go up. The more it goes up, the more likely you are to be approved for your next credit card or loan. Other things that can help you raise your credit score include:
- Consolidating multiple credit cards or loans onto one credit card or loan
- Limiting how many times you apply for credit in a two-year period
- Lowering the amount of money you spend out of your available credit
- Making all of your payments on time or before the due date
- Paying your rent on time
- Paying your mortgage payment on time
- Paying your credit card balance off in full each month (this also helps you avoid interest charges)
How Comprehensive Credit Reporting (CCR) affects your credit scores
Banks are now required to add more information to your credit report thanks to Comprehensive Credit Reporting (CCR). This helps lenders see the bigger picture in regards to your credit history so they can make more informed decisions.
The newest additions to your credit report include:
- The types of credit lines you’ve opened in the past two years
- The amount of money you are repaying
- Your repayment history over the last two years
Are you ready to get your credit moving in the right direction? Check your score.