What is a ‘good’ credit score?

Wrapping your head around credit scores and credit reports can be daunting at first. How is your credit score calculated? When does your credit score update? And most importantly, how do you rank? We’re here to break down credit scoring and get real about your finances so you’re in the know, and a little bit wiser.

Let’s start with the basics.

What is a credit score?

A credit score or credit rating is a numerical score that represents how trustworthy your reputation is as a borrower.

Essentially, your credit score sums up your financial history or ‘credit behaviour’ (ie. times you’ve paid bills late or if you’ve ever defaulted on a payment) into one number that indicates how trustworthy you are. Lenders, banks, and insurers may use this information to decide if they will lend out money, as a credit score is an indication of how likely they are to be paid back and paid on time.

Where does your credit score come from?

Credit Reporting Bureaus (CRB).

Australia technically uses four credit bureaus:

1. Equifax

2. Experian

3. Illion

4. Tasmanian Collection Service

Let’s focus on the first three (sorry, Tassy). Below is a quick summary of how each CRB categorise their credit scores*.

What factors contribute to credit scores?

A bit like the Colonel’s 11 herbs and spices blend, credit bureaus aren’t one to reveal their secrets. Nobody knows the exact recipe each CRB uses, but it essentially comes down to a few key factors.

  • Recent credit behaviour & enquiries
  • Repayment history
  • Length of payment history
  • Type of credit
  • Debt burden

What is a good credit score?

The bands used by the CRBs are a pretty good place to start when assessing how good your credit score is. That’s because they take into account credit scores across the total credit active population. Credit scores are used and viewed by different lenders in different ways, however an easy way to look at it is – the higher the score the better.

The thing to remember is that your credit score can change over time and how it changes is over to you.

How long does a ‘bad’ credit score last for?

Let’s start with the good news. Your credit score is always changing based on your financial behaviour which means you can actually improve your score with some good behaviour. The not-so-great news is that defaults and ‘bad’ marks against your credit score can stay on your file for 5-7 years.

Staying on top of your credit standing is important so you can feel confident knowing that you have access to funds when you need it. WisrCredit Bootcamp can give you a step by step guide to get on top of it starting today.

Credit scores come down to responsibility. Being conscious of staying on top of your payments and checking your credit score regularly can help you maintain a good, healthy credit rating.

Positive Credit Reporting

Positive Credit Reporting, also known as Comprehensive Credit Reporting (CCR) has been around for 4 years in Australia. It essentially means that lenders can see more data in your credit report so they can better assess a borrower’s true credit position and their ability to repay a loan.

Why are we telling you this? The benefit of lenders having more comprehensive info about your credit standing means that lenders can make more informed decisions based on your credit behaviour. Having more certainty around your ability to pay back a loan could result in lower interest rates and better financial products. So working hard to keep your credit score in good condition is more important than ever.

How can you find out your credit score?

You’ve come to the right place. Use our free WisrCredit tool to get both your Equifax and Experian score in minutes and in one place.

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If you want to get Wisr about your credit position, check your credit scores for free!

 

Disclaimer: This article contains general information only, and is not general advice or personal advice. Wisr Finance Pty Ltd does not recommend any product or service discussed in this article. You must get your own financial, taxation, or legal advice, and understand any risks before considering whether a product or service discussed in this article may be appropriate for you. We have taken reasonable efforts to ensure that the information is accurate at the time of publishing, but the information is subject to change. We may not update the article to reflect any change.

What the finance is a credit score?

Personal finance can feel about as straightforward as Beyoncé’s hair on a humid day. Less than 30% of Australians have actually checked their credit score from a credit reporting bureau so you’re not alone if you’re wondering what it is and why you should care. We’re here to help you become a little Wisr on credit scores in a way real people can understand. Let’s break it down…

So, what’s a credit score then?

First off, you may have three of them. We’ll cover why a bit later on. So really, the question should be “what are your credit scores?” Plural. Oh, and you might hear them referred to as “credit ratings” as well – same thing.

Right, now that we’ve covered that, your credit scores are numbers that represent your credit risk. They provide a way for credit reporting bureaus to try and quantify how likely, or unlikely, you might be to repay your bills. Don’t freak out – your credit score isn’t the only factor lenders consider, but it is usually one of the main considerations to find out where you stand in your financial behaviours. It’s also easy to increase your score once you know what it is and how to improve it. Nice.

How are credit scores calculated?

The short answer is that every credit reporting bureau has a different way of calculating their score.

The longer answer is that the credit reporting bureaus will look at your credit history and make a determination based on their own algorithms. Unfortunately, the algorithms they use are unavailable to the public for fear of trying to “game the system,” but following good financial practices will help make sure you’re going to land in the higher range of scores. You may also hear the term “credit report” floating around. Credit reports are different to credit scores and are made up of information like: demographics, types of companies you’ve taken out credit with, the amount of credit you’ve borrowed, how many credit applications and/or enquiries you’ve completed and any overdue payments you may have had. Basically, it’s a report of your financial life known as your credit history.

Let’s review:

Credit score (credit rating) = a number calculated from all available information on your credit history.

Credit report = comprehensive collection of your personal and financial details used to determine your credit score.

You can see a general explanation how each credit reporting bureau determines their score on their websites or you can read our Anatomy of a Credit Score article.

What does a credit score mean for you?

Effectively, the higher the score, the better your creditworthiness.

Your credi-wha?
Your creditworthiness is the same as saying how dependable you are to repay your debts. When you’re seen to be more creditworthy, you’re likely to benefit from lower interest rates and being more easily accepted when applying for any more credit. It becomes pretty important when you go to borrow money for a home, wedding, car or any other large purchase.

Why you should check your score

Aside from just knowing where you stand and how easily you might be able to access credit, you’ll also want to be sure no one is swooping in on your identity or making mistakes on your credit report. It shouldn’t happen often, but it does happen.

If your scores aren’t within range of each other, it might indicate you have a mistake on your report or there’s been identity theft. That’s why using a service where you can compare multiple scores is so helpful. If something doesn’t seem right, you should get in touch with the relevant credit reporting bureau to find out what might be going on.

Some ways you could boost your credit score

We have a whole blog post on this subject, but since you’re here, these are a few things you can do to boost your score:

  • Paying your credit card off in full each month or at least making sure you meet your minimum monthly payment
  • Looking into debt consolidation (we can help with that!)
  • Limiting the number of times you hit your credit report with enquiries
  • Paying your rent, utilities and other bills on time
  • Remembering not all lenders are treated the same (e.g. Payday enquiries may be viewed negatively)

Have a look at our 7 Ways to Improve Your Credit Score post for more detailed information.

The bottom line

Many life moments may depend on your credit score, so best to check it out now.

 

Disclaimer: This article contains general information only, and is not general advice or personal advice. Wisr Finance Pty Ltd does not recommend any product or service discussed in this article. You must get your own financial, taxation, or legal advice, and understand any risks before considering whether a product or service discussed in this article may be appropriate for you. We have taken reasonable efforts to ensure that the information is accurate at the time of publishing, but the information is subject to change. We may not update the article to reflect any change.

Five surprising things that can affect your credit score

So you’ve gone and changed your mobile provider for the third time this year to save some cash. Well done you! Or so you thought when you got that extra 2 GB of data each month. In reality, you could be impacting your credit scores.

 

Changing mobile providers is just one of the little-known factors that can hit your credit scores. Here are a few others to keep you all the Wisr.

 

Requesting a credit limit increase

By requesting a credit limit increase, you’re giving yourself access to more credit. Sounds like a perfectly reasonable thing to do if you need it. Each credit card company will handle applications differently but some will do a hard enquiry against your name to determine your creditworthiness.

Your mate taking over your utility bills

We all have some financially responsible friends and we all have those that, well… could use a trip to our WisrCredit bootcamp. By leaving a utility bill in your name with a mate, you could be risking missed payments or unresolved issues. These could be recorded against YOUR score!

Parking fines forgotten

Many official unpaid fines are reported so when you let that early morning parking fine go unpaid for too long, you’re looking at a potential black mark against your credit.

Changing house often

Well, indirectly. When you move house, you often change utility providers. Like requesting a credit limit increase, a new utility provider is likely to do a hard enquiry which can impact your credit.

Errors on your credit report

Your credit reports are compiled with information from multiple sources. Chances are, there’s going to be an error from time to time. An error on your credit report can significantly impact your score if the information is negative in nature. The good news is Australians are entitled to a free credit report once annually to spot errors like these!

 

If you want to get Wisr about your credit position, don’t forget you can always check your credit scores for free!

 

 

Disclaimer: This article contains general information only, and is not general advice or personal advice. Wisr Finance Pty Ltd does not recommend any product or service discussed in this article. You must get your own financial, taxation, or legal advice, and understand any risks before considering whether a product or service discussed in this article may be appropriate for you. We have taken reasonable efforts to ensure that the information is accurate at the time of publishing, but the information is subject to change. We may not update the article to reflect any change.

Reasons For Different Credit Scores

There are three major credit reporting bureaus in Australia – Equifax (previously Veda), Illion (previously Dun & Bradstreet) and Experian – all have different credit scores for individuals.

Credit scores can sometimes be a little confusing for would-be borrowers, particularly because they can vary depending on which organisation is providing them.

Whilst each credit bureau collects roughly the same type of information – everything from previous applications for finance and important information like defaults and bankruptcies – the way they interpret this data will vary.

Each bureau has their own way in which they collate and rank data to ultimately come up with a ‘score’, which is their representation of how creditworthy a person might be.

Sources & Timeframes

Historically financial institutions have not had to report customer enquiries to all credit reporting bureaus – so while one bureau may have known about a particular transaction, others may have no knowledge of it – and even when it was shared, timings and delays could be substantially different.

Algorithms & Interpretation

Even with the same data, each credit reporting bureau have their own proprietary algorithms which calculates different weighting to different financial actions and information, based on what their analysis tools consider to be high or low risk.

Score Ranges

As well as potentially different data, and interpretations, the CRBs also set scores within different ranges representing different risk ratings, and are therefore not directly comparable.

Are different credit scores an issue?

The difference in scores is not something to be concerned about, and they should generally fall into a similar band.

If they do not, then there may be something adverse going on – such as a default you are unaware of, or it could just be that you haven’t been active in finance for long (this is usually the case if you are under 25, or new to Australia).

So is WisrCredit  providing a credit score?

No. WisrCredit is a free service that looks to provide you with your credit scores from two major credit reporting bureaus in Australia (Equifax and Experian). These individual credit scores provide an indication of your overall financial credit health, to keep you well informed about your creditworthiness.

 

Disclaimer: This article contains general information only, and is not general advice or personal advice. Wisr Finance Pty Ltd does not recommend any product or service discussed in this article. You must get your own financial, taxation, or legal advice, and understand any risks before considering whether a product or service discussed in this article may be appropriate for you. We have taken reasonable efforts to ensure that the information is accurate at the time of publishing, but the information is subject to change. We may not update the article to reflect any change.

Seven Wisr Ways To Improve Your Credit Score

There’s always room for improvement when it comes to keeping your credit health in check.

Yep, even a great credit score can be improved! We’ve come up with seven helpful tips to help you stay on track and improve your credit score.

1. Keep your credit applications on the down low

When it comes to shopping around for a personal loan, getting the best rate is an important factor for many borrowers. When you make a credit enquiry for a loan or a credit card it is recorded on your credit report, even if you don’t follow through with the application.

Submitting several loan applications to multiple lenders with the hope that one will be approved could be detrimental to your credit score.

To help reduce your risk, you should consider the “six-month rule”, meaning that you try to limit yourself to just one or two credit enquiries every six months. It is also worth using online calculators and services which won’t impact your credit score before submitting a formal credit application.

2. Pay your bills on time

Even the most organised people sometimes forget to pay their bills on time. Late payments for bills over 14 days for credit cards, personal loans, auto finance and mortgages going back two years can have a negative impact and lower your credit score.

It is important to always pay your bills on time and if there ever is a problem, make sure it is paid as soon as possible and keep the company informed about your circumstances to avoid having a default listed on your credit file.

3. Avoid defaults (overdue debt) at all cost

If you are overdue on a payment that is more than $150 and you have been given notice of the intent to default, this is serious and could result in a formal default being recorded on your credit file for the next five years. This record could also stay on your file, even if you subsequently pay off the amounts overdue.

If you’re struggling to pay your bills or meet your regular repayments due to unexpected circumstances, it’s best to contact the Biller or credit providers and see if you can apply for a hardship variation and negotiate a repayment plan.

4. Review your credit report regularly and correct errors

You are entitled to obtain one free copy of your credit report per year from each of the major credit reporting bureaus (Equifax, Experian and Illion). Even if you believe you do not have any negative information on your file, it is still wise to check it, as there could be errors.

If any information on your credit report is incorrect it is important to fix it straight away otherwise future credit applications will be affected.

Check out the WiserCredit Bootcamp on how to take control of your personal credit file.

5. Keep an active credit account

No, we’re not recommending you go on a huge shopping spree. But it’s actually a good thing to have a proven credit track record that shows you can meet repayments of any credit outstanding, including mobile phone plans, an internet account, utility accounts even a personal loan or credit card.

As long as you are managing your debt well and meeting all your commitments, this demonstrates to lenders that you may be a worthy credit borrower and may even help increase your credit score over time as long as you consistently manage your finances well.

6. Consolidate your debt

When you try juggling too many repayments for multiple debts, this could lead to missing payments or worse not having the sufficient funds needed to cover the payments that fall due. Reducing your debt may be helpful to your credit rating in the long run.

If your credit file is free from any negative listings and defaults, then your bargaining power may lead to a lower cost way of managing your debts. Consolidating several loans or credit cards incurring high interest rates into one lower interest rate loan may be a wise thing to do.

7. Know what counts on your credit file

It’s more than just credit cards and loans that affect your credit file. Taking out a new phone plan or connecting to a new utility company could impact your credit report, as these companies may make enquiries about your creditworthiness.

It’s also important to know that not all enquiries are treated the same way. For example, a short-term loan (also known as pay-day loans) or car finance may be seen as riskier to a lender than a home loan application or new electricity connection.

Disclaimer: This article contains general information only, and is not general advice or personal advice. Wisr Finance Pty Ltd does not recommend any product or service discussed in this article. You must get your own financial, taxation, or legal advice, and understand any risks before considering whether a product or service discussed in this article may be appropriate for you. We have taken reasonable efforts to ensure that the information is accurate at the time of publishing, but the information is subject to change. We may not update the article to reflect any change.

Anatomy Of Your Credit Score

Understanding what hurts or improves your credit score is a great starting point to improving your financial fitness.

While the exact breakdown is not always clear, Credit Reporting Bureaus (CRB) such as Equifax have provided the general weightings that go towards a credit score.

  • 10% – Length of your credit history, and personal information
  • 10% – Adverse events (e.g defaults)
  • 30% – Repayment history over the last 2 years
  • 50% – Number of credit enquiries in the last 5 years

Personal Info

Personal information that goes into your credit score is not so much about what Netflix shows you watch, but more about an individual’s details which may be used to correlate to a risk rating. Personal details like age and postcode and how old your credit file is, also plays a part in your credit score.

Adverse Events

If you go bankrupt or default on debts; expect not only your credit score to be severely impacted, but many established financial institutions may not offer you credit for many years.

Repayments

With Comprehensive Credit Reporting (CCR) coming into place in Australia in 2018, your repayment history is becoming even more important.

Historically lenders might review your repayment history by looking at your recent bank statements to assess whether you might be creditworthy, but CCR will actually mean that a lot of your repayment history will be shared automatically by financial institutions, so it will become baked into your score.

It may seem obvious, but paying back your credit cards and other debts on time will help improve your credit score.

Enquiries

The number of credit enquiries you make, regardless of whether you were approved for the finance or even accepted the offer, plays the biggest part in your credit score. Additionally, the type of credit enquiry can also impact your credit score substantially – because some types of credit enquiries are regarded as high risk indicators.

Generally any enquiry for a relatively small amount (usually under $2,000), that requires quick repayment over several months, with high interest might impact your credit score substantially. These are commonly referred to as ‘PayDay’ lenders. If you are considering this type of lender, MoneySmart (operated by an Australian government department) talk about them here.