A credit score is a number that is calculated by one of Australia's three major credit reporting bureaus - Equifax, Experian, or illion - to represent your trustworthiness as a borrower. These scores will typically range from zero to 1,000 or 1,200. The higher the number, the better your score. These are often used by lenders to determine your eligibility for certain credit products. So why should you care about your credit score?

Advantages of a good credit score

1. Lower interest rates

One of the biggest advantages of having a good credit score is that you can qualify for lower interest rates across financial products ranging from loans and credit cards. This has the potential to save you thousands of dollars over the life of a loan, as well as to help pay off debt more quickly.

2. Higher credit limits

Credit card companies and lenders often offer higher credit limits to people with good credit scores. This can help you make larger purchases or handle unexpected expenses. Higher credit limits can also help you improve your credit score, as long as you use them responsibly.

3. Easier to rent a property

Many landlords and employers check credit scores when making decisions about tenants or job applicants. A good credit score can make it easier to rent an apartment or get a job. A good credit score can demonstrate to potential landlords and employers that you are financially responsible and able to manage your finances.

4. Better car insurance premiums

Car insurance companies also use your credit score to work out your premiums, with bad credit applicants paying a few extra dollars each month. As you've probably worked out by now, having a better credit score means lower premiums. 

5. More options for mobile phone contracts

A better credit score means that you'll be more likely to be able to get a hassle-free mobile phone contract with better terms and more models available to you. Poorer scores may result in you having to pay a larger upfront deposit, or being restricted in your choice of model and upgrade. In the worst-case scenarios, you might not be able to get a phone contract at all and have to use a pay-as-you-go or prepaid service instead.

6. Access to more credit

If you have a good credit score, you will have more options when it comes to credit cards and loans. You may also be able to qualify for special offers and rewards programs that are not available to people with lower credit scores. This can include cash back, travel rewards, and other perks.

7. Greater financial security

A good credit score can give you more options and flexibility when it comes to managing your finances. It can also help you prepare for unexpected expenses and emergencies. With a good credit score, you will have more options when it comes to getting a loan or credit card in case of an emergency.

It's important to note that maintaining a good credit score takes time and effort. This includes paying bills on time, keeping balances low on credit cards, and limiting the number of new credit applications you make. Boosting your credit score can lead to a higher credit limit and the ability to access more favorable credit products in the future.

8. Access to certain jobs

If you're applying for jobs in certain industries such as accounting, finance or legal, you'll likely be subject to both a criminal history check and a credit check. While the employer might not worry if your score isn't in tip-top shape, there might be a few 'Please explains' if you have racked up huge unpaid debts, have many credit cards, or have been declared bankrupt.

What is a good versus a bad credit score?

Although ranges vary depending on the credit reporting bureau, generally credit scores from 580 to 669 are considered fair; 670 to 739 are considered good; 740 to 799 are considered very good; and 800 and up are considered excellent.

Credit score range illion Equifax Experian
Excellent 800 to 1,000 833 to 1,200 800 to 1,000
Very good 700 to 799 726 to 832 700 to 799
Average 500 to 699 622 to 725 625 to 699
Fair 300 to 499 510 to 621 550 to 624
Low 0 to 299 0 to 509 0 to 549

Each of these three usually offer one free credit report per year. This is an in-depth report, and can be important to use to see if there are any mistakes in there. They can also be useful if you suspect fraud, as the fraudster may have applied for credit products in your name.

These agencies also offer credit score checkers, which can be checked for free and regularly, but aren't as in-depth. For illion this is Credit Simple; Experian, Credit Savvy; and Equifax, Get Credit Score.

If you have a 'good' credit score, you'll likely have access to things like a lower interest rate, the ability to negotiate your terms, and more. On the other hand, having a 'bad' credit score means you'll likely be required to pay a higher interest rate, and even be limited in your borrowing power as well as which lenders you can borrow through.

In late 2022 an Experian survey found the average Australian's credit score was 846, which would be classed as 'Excellent'. However this was a survey of just over 1,000 respondents. Older generations generally had better credit scores as they had more time to pay down debt and build up a history.

How is a credit score calculated?

A credit score is calculated based on what's in your credit report. This can include:

  • The amount of money you've borrowed.
  • The number of credit applications you've made.
  • Your ability to make timely repayments.

If you don't have a credit score falls within the 'excellent' category, don't worry; it's not the end of the world. Many secured forms of credit - secured car loans and home loans - are less reliant on this metric and generally anyone with an Average or better score can access competitive interest rates.

Your credit score can improve over time by keeping on top of your debt repayments and paying off phone and electricity bills on time. The downside is that with a 'bad' credit score, banks and lenders will likely view you as being riskier to lend money to than someone with a good or excellent score. This will likely require having to pay greater interest rates over time.