What is a credit score and why is it important? (2024)

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In this article

  • What is a credit score
  • 4 quick ways to improve your credit score
  • Myth busting some common misconceptions

What is a credit score and why is it important? (1)

Ahh, the good old credit score! You hear about them everywhere, and they sound important to your financial future. But what exactly is a credit score? And how can you benefit from understanding yours?

We asked some experts to fill us in on the details.

Wait, what is a credit score?

A credit score is a number or ‘rating’ given to your credit history – ie. how you’ve repaid debts or used credit over time. According to MoneySmart, your score will be between 0 and 1000 (or 1200 depending on the credit reporting agency), and is calculated based on:

  • the amount of money you’ve borrowed
  • what type of credit applications you’ve made (things like pay day lending, mortgage, credit card or personal loans)
  • whether you pay on time

While it’s not the only factor lenders look at when assessing credit applications, the higher your score, the less risky you appear to the lender. This could be the difference between getting a better deal, saving money or being more likely to get the loans you apply for.

Do I have a credit score?

No, you don’t automatically have one. But you can request one, if you already have credit– and it’s likely that at some point during your adult life, you’ll need one in order to apply for a mortgage to buy a house or get a personal loan. You can also check your credit score at any time. The Australian government’s MoneySmart website has lots of helpful information and a list of businesses you can request a credit score from.

Is my credit score set in stone?

No! You can always work to improve your credit score and take advantage of building up a strong credit history.

If life gets in the way and things slip through the cracks – for example, missing a couple of loan repayments or paying late on your credit card – your credit score might end up lower than you’re hoping for, but there are many things you can do to get back on track.

How to improve your credit score:

“It’s about continuing to demonstrate to your creditors, or the businesses you owe money to, that you can keep on top of your payments,” says ANZ expert Jade Khao.

To get back in the groove, you might consider acknowledging any past issues with your lender, discussing new, achievable ways to help you pay off any outstanding debts with a lender or institution, and looking to create positive habits and behaviours (eg. automating your credit card payments so you don’t miss any).

Here are four quick ways that MoneySmart recommends to improve your credit score:

  • Pay your mortgage, credit card and bills like utilities for example, on time
  • Lower your credit card limit
  • Limit how many applications you make for credit
  • Request your credit report and ensure the details are correct and up to date: any discrepancies might affect your score even if they’re not accurate.

Some common misconceptions about credit scores:

1.Is regularly checking my credit score bad?

According to Jade, not exactly. There are two types of credit enquiries:

“When you officially apply for credit, that’s a ‘hard’ enquiry and that goes onto your credit score.

“Checking information about your history won’t impact your credit score. You can perform this check as often as you like. You’re not applying for credit, just seeking information about your score. So nothing goes on record and your score won’t change.”

2.If I get married, do I keep my own credit score?

Unlike a lot of other financial information, your credit score is not shared with your significant other.

“Some people think that just because you’re married your score combines,” Jade says. “That’s not true – everyone has their own credit score.”

3.Is it normal to find credit scores scary?

“Don’t be scared of credit scoring,” Jade says. “If you’re not familiar with the detail, it’s easy to get anxious and scared. However, as long as you’re working to meet your loan repayments and reaching out for help when you need some guidance, there’s no need to be worried.

“It’s all about keeping track of your existing debt, or assessing the loans you want to take out, and thinking about whether you can make those repayments or if you need to rethink your plan.”

Whatever your credit situation, remember that you can always work to make it better.

If you want to learn more about how credit and debt affects you, ANZ’s Financial Wellbeing program can provide you with insights and resources to feel better about your money. There’s even a free, six-week course where you receive weekly challenges, coaching, tips and tools direct to your inbox. You can find out more here.


What is a credit score and why is it important?


Financial Wellbeing Coach



What is a credit score and why is it important? (2024)
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