How to check your credit score

Credit rating check is a risk assessment tool used by credit providers across the world. Credit rating, which is also known as a credit score, indicates the creditworthiness of a borrower. Keeping a close eye on your credit score is important so that you know your prospects when applying for credit. It also gives you an opportunity to improve your score.

Credit score and credit history checks in Australia are performed every time you apply for a loan or a credit card. This article tells you what you need to know about your credit score and how to check your credit score in Australia.

A credit score is a three-digit number that you can find in your credit report. It is assigned by credit rating agencies to show your creditworthiness as a borrower. The score is calculated on the basis of your credit history and other financial details. Australian credit scores are calculated by different credit rating bodies.

As an individual, your credit score makes it easier for you to manage your finances and be responsible for them. If you have a low score, you may be more cautious about recklessly borrowing loans or taking on multiple credit cards as payment defaults can directly impact your score. It also helps you apply for the right kind of credit applications and avoid getting rejected. For instance, approaching larger banks and financial institutions for loans for bad credit ratings may not be the right choice for you as they have a high cut-off for eligible credit scores.

Lenders use credit scores to understand your likelihood of repaying debt. The higher your score, the more likely you are to repay your debts on time, increasing the chances of the lender approving the disbursement of a new loan. On the other hand, a lower score can mean an outright rejection of your application or having to borrow credit at a much higher interest rate or other onerous terms.

Credit score is calculated by credit rating agencies after collating consumer-credit-related information and your credit history from lenders as well as the public domain. The information is compiled into credit reports and a credit score is assigned using a credit scoring model.

Here’s a breakdown of the kind of information collected:

• Details of commercial/consumer credit you have borrowed;
• Repayment history;
• Credit inquiries;
• Payment defaults or delays;
• Serious credit infringements;
• Consumer credit liability information;
• Application for bankruptcy; and
• Personal identification details such as name, address, driver’s licence, and date of birth.

To make credit score calculations more accurate, credit reporting agencies now follow comprehensive credit reporting (CCR). It refers to the sharing of customer credit information between lenders and credit reporting bodies.

Prior to comprehensive credit reporting, credit reports only contained negative credit information such as payment defaults and credit infringements. But with its launch in 2017, more comprehensive data is made available to credit reporting bodies to include in credit reports so that lenders can make an accurate assessment of the financial situation of the borrower.

As part of CCR, information such as types of credit accounts held by a customer, credit limits imposed by banks, and opening and closing date of accounts are also included in the credit reports. Negative events such as payment defaults also show up in credit reports, making it all the more important to repay bills on time.

You can obtain a free credit score check in Australia through a number of online providers such as ClearScore. To do so, you will need to:

1. Sign up on ClearScore using your email address
2. Authenticate your identity using your driver's licence number, medicare number or passport number
3. Enter other personal identification information such as your name, date of birth, and residential address. In case you have lived at your current address for less than three years, you may need to provide a recent home address.

You will be able to view your credit score within a few minutes, provided you have entered the correct information.

Additionally, as per Australian laws, credit reporting bodies are also required to provide free credit reports once every three months. In case a lender has denied your credit application in the past 90 days or your credit-related personal information has been updated recently, you can ask the credit rating agency for free credit reports to check your credit score.

Certain credit rating agencies also let you check your credit scores for free on their website. For example, if you want to access your Equifax credit score in Australia, you can get it for free by logging into the website. Several credit card companies also allow cardholders to check free credit scores in Australia. So make sure to speak to your card company.

Inquiries for credit scores are classified into the following categories:

Soft inquiries

When you check your credit score, whether through the website of credit rating agencies or through online credit score providers, it is considered a soft inquiry. Such credit score checks do not impact your credit score. The number of times you check your credit score also doesn’t appear anywhere in your credit report.

Hard inquiries

When you apply for credit or buy insurance, lenders run credit reference checks to obtain your credit history and understand your creditworthiness. Such inquiries remain on credit reports and can drop your credit score by 5 points.

They impact your credit score negatively as they may indicate that you are a credit-hungry borrower who is always in need of more credit. Noticing multiple credit applications within a short time may also signal to potential lenders that you have financial difficulties and are in constant need of credit beyond your means. This is a red flag for lenders as they do not want to lend to a borrower who is at risk of overextending themselves.

Keep new credit requests in check

Every time you apply for a new credit product, lenders perform a credit check. Repeated credit inquiries and credit applications show up in your credit report and negatively impact your credit score.

If you want to build your credit score, stay away from applying for new credit unless you really need it.

Review your credit report for errors

The inclusion of more data in credit reports due to comprehensive credit reporting can lead to more errors. Therefore, you should remain vigilant and check your credit report diligently. If you notice any inaccuracies, you can contact credit reporting bodies to remove them right away so that it doesn’t impact your credit score.

Be mindful of your credit utilisation

Credit utilisation refers to how much of your available credit limit are you using at any given time. Having a very high credit utilisation ratio can hurt your credit score. To keep it in check, make sure to pay your credit card balances in full every month.

Opt for debt consolidation

If you have a significant number of outstanding debts, consider availing a debt consolidation loan to repay the debts. You will only have one debt to deal with and even manage to repay it a lot faster. It will also improve your credit utilisation ratio and help you build your credit score.

The best credit score check is the one that you can do easily and consistently. Whether you obtain credit reports through credit rating agencies or use an online aggregator, make sure to check your score regularly so you stay on top of your finances.

With ClearScore, you can check your credit score in just a few clicks. Take a look.