If you have ever applied for credit products in Australia or set up certain types of accounts, it is very likely that a credit file has been automatically created for you.

It’s widely understood that credit products include home loans, personal loans and credit cards. However, you may not know that they can also include certain types of accounts where you are billed periodically for an ongoing service, such as phone, internet or utility accounts.

When you engage in one of these activities, your lender or service provider provides this information to an authorised credit reporting body (also known as a credit reporting agency or CRA) such as Experian, Illion or Equifax. The credit reporting body collects and stores this information, and collectively this data is known as your credit file.

When you apply for a new credit product, your new credit provider will often request a copy of your credit report from an authorised credit reporting body.

Credit providers generally want to examine your previous and current credit behaviours (your credit history) before deciding whether to approve a new credit product for you.

Your credit report summarises the raw data contained within your credit file and generally follows a relatively standardised and easy-to-read format.

This format is more manageable for credit providers to use when assessing your ‘creditworthiness’ (i.e. the extent to which they feel confident you will be able to meet your financial obligations if they approve the new credit product).

Credit reports generally contain most or all of the following information

• Personal information including your name, date of birth, current and previous addresses, driver’s licence number if known, and employment history.
• Current credit accounts (including the credit limit/loan limit if applicable) and the dates they were opened.
• Recently closed credit accounts and the date they were opened and closed.
• Monthly repayment history on credit accounts such as loans or credit cards (this does not show the actual amount you paid, but instead shows whether you met your minimum obligation that month or not).
• Overdue accounts and defaults.
• Details of credit products you have applied for, even where the product was not approved, or you elected not to proceed.
• Legal information such as court judgements, directorships, bankruptcies and debt agreements.
• A list of businesses and entities that have recently checked your credit report. (For example, if you apply for a loan, you would likely see that your broker and chosen bank have accessed your credit report to assess it as part of the loan process).
• Your overall credit score.

It is an overall score calculated using the information in your credit file, and it gives credit providers a high-level overview of your creditworthiness (that is, how likely it is that you will be able to repay the new credit product you are applying for based on your current and past history).

Lenders and credit providers consider people with higher scores less risky, and people with lower scores riskier when it comes to repaying loans or meeting your payment obligations for credit products.

High scores give you a more comprehensive range of options and, in some cases, may open up better deals, such as allowing you access to lenders with lower interest rates or higher limits.

On the other hand, low scores can negatively impact your ability to be approved for new credit products, or they may limit the options available to you when applying for new credit products.

For example, new defaults or missed repayments can quickly lower your credit score.

There is currently no standardised way of reporting credit scores in Australia.

Some credit reporting bodies score from 0 to 1000, while others score on a scale of 0 to 1200. This means your credit score can vary widely depending on the credit reporting body that has provided it.

When applying for a new credit product, credit providers take into account the differences in the way different credit reporting bodies record credit scores, so you can be assured that you won’t be penalised or seen as less creditworthy simply because they access your score via a credit reporting body that uses a lower scoring range.

What is considered a ‘good’ credit score varies between credit reporting bodies, as each uses a slightly different scale when calculating your score?

Experian and Illion both report scores on a scale of 0 to 1000. However, both use slightly different score bands. Experian considers a score of 550 or higher to be average to good, while Illion considers a score of 500 or above to be average to good. Both consider scores of 700 and above to be very good to great.

Equifax reports scores on a scale of 0 to 1200. They consider anything above 661 a good score and anything above 735 very good or excellent.

It is possible, although rare, to have a credit score of zero. This is usually due to a significant default, bankruptcy, or repeated and consistent late payments.

Credit providers use credit scores to check your creditworthiness quickly when deciding whether to approve new credit products you have applied for.

When applying for a home or investment property loan, some lenders use automatic scoring.

That is, if your score is below a certain threshold, they will automatically decline your application. This can also occur with other loan products such as credit cards, personal loans and car or asset loans.

On the other hand, some lenders and credit providers are less concerned with your overall credit score and are more concerned with the detailed information shown in your credit report.

These sorts of credit providers may be more likely to consider approving loans for applicants with low credit scores, especially if there are mitigating factors or good explanations regarding the past poor credit history, as long as you can demonstrate an ability to repay the loan based on your current circumstances and recent history.

However, it is essential to keep in mind that most lenders see poor credit history or a low credit score as a potential red flag; it can be a sign that approving a loan or credit product for that particular person may be pretty risky, as there is a chance the lender or credit provider will not be able to recoup their money.

As a result, these types of lenders are more likely to charge higher fees or steeper interest rates than other lenders or loan types to offset the level of risk they are taking on by approving the loan. They may also be willing to lend less overall or lend only a smaller percentage of the total value of your property (also known as your LVR or loan-to-value ratio).

Therefore, while in many cases it may still be possible to apply for a loan with a bad credit score, you are unlikely to have as many options when it comes to the choice of a lender as someone with a higher score.

This means that while you are not penalised as such by being given a higher home or investment loan interest rate due to your low credit score or poor credit history, you may simply not have access to some lenders offering the sharpest rates in the market.

Likewise, someone with a high credit score is not automatically rewarded with a lower interest rate. However, they may have access to a wider choice of lenders, including those offering sharper rates.

Unfortunately, lenders do not publish their scoring system when it comes to home and investment property loan applications, so there is no particular credit score that will automatically get your loan approved.

Some banks do have a minimum credit score that will generate an automatic decline for applicants under this threshold, but this is generally only known internally to each individual bank or lender and kept private.

Many lenders also do not set a single static score as the threshold for whether they will consider a loan. In fact, the threshold can change regularly due to changes in the lender’s appetite for risk or in line with economic changes. This means that a score that would be approved or declined today may not have the same result a month or year from now.

Having said that, while there is no ‘magic number’, most lenders prefer to see a score in the higher end of an average to a good range or higher.

It’s essential to remember that your credit history (including your credit score and/or credit report) is only one factor that lenders consider when assessing your application.

Lenders also need to weigh up factors including – but not limited to

• your income and expenses,
• your assets and liabilities,
• the loan value and purpose,
• the value of the property being used as security,
• the stability of your employment and living arrangements,
• and whether you can continue to afford the loan both at current interest rates and if interest rates increase.

Lenders will also want to assess evidence and documentation to support your application, and they may also consider your existing conduct if you are already a customer with them.

Even with an outstanding credit score, your loan will not be approved unless all other assessment criteria for that particular lender are satisfied.

It does not generally cost anything to access your credit report or check your credit score in Australia.

A credit reporting body (Equifax, Illion and Experian) must provide you with a copy of your report for free once every three months upon request. You are also entitled to obtain a copy if you have been declined for a credit product within the last 90 days, or if your credit-related personal information has recently been corrected.

Outside of these circumstances, the credit reporting body is entitled to charge a reasonable fee to provide your credit report.

Each credit reporting body may hold slightly different information, so you may wish to request a copy of your report from more than one credit reporting body to compare. You can request a copy online or by telephone at:

Equifax: Phone 138 332

Experian: Phone 1300 783 684

Illion: Phone 1300 734 806

There are multiple websites and apps that allow you to check your credit score for free.

A list of free credit score providers can be found at https://www.creditsmart.org.au/know-your-credit-score/. 

It is worth noting that the credit score provided to you via these websites and apps is generated from the information held by one of the credit reporting bodies listed above.

It’s also important to be aware that many credit score providers will use your information for marketing purposes (i.e. to advertise goods and services to you), so it pays to read their privacy policy and decide whether you want to opt-in or opt-out of marketing before proceeding.

There are a lot of misconceptions about how you can ‘build’ your credit or raise your credit score in Australia.

For example, in a 2019 study, 95% of respondents believed that paying your bills on time increases your credit score. The truth is that there are sadly no ‘bonus points’ for making repayments, but on the other hand single missed repayment can reduce your credit score by up to 22%.

Likewise, having a high-income job, high savings account balances, or owning high-value assets has no bearing on your credit score.

However, there are some simple things you can do to help give you the best possible chance at improving your overall credit score.

There are two key things you can do to give yourself the best and fastest chance of having a good credit score.

1. Ensure all the information on your credit report is accurate so that you are not paying the price for poor credit behaviours you are not actually responsible for.

2. It is vitally important to avoid doing anything that would negatively impact your credit report and score. 

Some things you can do to put yourself in the best possible position to have a higher credit score are as follows:

Pay your bills and make your repayments on time to avoid losing points for missing repayments or defaults.

Bring any missed payments or defaults up to date as soon as possible and keep them that way consistently.

• Older problems generally don’t affect your credit score as much as newer problems, especially if they are minor or one-off problems, so a consistent recent history will help you rebuild your score.
• It’s also important that any defaults are paid off before they get transferred to a debt collector, as this can hurt your credit score further.

Don’t apply for too many credit products or make too many enquiries in a short period.

• Every time you make a new enquiry about obtaining a credit product, this enquiry will appear on your credit report and lower your overall credit score.
• This can be a red flag to lenders or credit providers that you are ‘shopping around’ for more credit as you’re in financial hot water, even if this is not actually the case.

Your credit score will only be negatively impacted if other credit providers are accessing it due to credit product or loan enquiries you have made with them.

Your credit score is not negatively impacted by you checking your own credit report or credit score.

Don’t open and close accounts too quickly.

• Newer accounts can lower your average account age which can have a negative impact on your credit score.

Avoid short-term credit providers such as payday lenders.

• These can be seen as a red flag that you are having difficulty meeting your financial obligations.

If your credit report shows adverse information such as missed payments, defaults or bankruptcies, it will take time for this information to drop off your report.

As time goes by, if all your credit accounts are bought back into good order and stay that way with no more adverse credit behaviour, your score will eventually begin to increase. 

Unfortunately, paying off a default or making up a missed repayment does not remove it from your credit report – only time will remove it. However, the status will be updated to show it as paid, which credit providers and lenders will often consider more favourably than a debt that remains outstanding.

Some of the main adverse credit behaviours listed on credit reports are as follows.

They remain on your credit report for the time shown:

• Financial Hardship Information – 1 year
• Defaults – 2 years
• Missed Repayments – 2 years
• Credit Enquiries (i.e. where you’ve applied for a credit product, whether or not you’ve been successfully approved) – 5 years
• Debt Agreements – the later of 5 years from the day the agreement was made; or 2 years from the day the agreement was terminated, end when the agreement ends under Section 185N of the Bankruptcy Act 1966, or an order was made declaring the agreement void.
• Bankruptcy – the later of 5 years starting on the day you become bankrupt, or 2 years starting on the date you were no longer bankrupt.

Any application for a credit product, including home or investment loans, will show as a credit enquiry and will have an impact on your credit score.

A small number of enquiries over a long period of time will only have a small negative impact and is unlikely to be a concern for most people.

However, repeated credit enquiries with different credit providers – especially within a short time frame – suggest to lenders that you might be shopping around for credit products, which can be a warning sign of financial difficulties.

In most cases, Afterpay and other Buy Now Pay Later (BNPL) services such as Brighte, Humm, Klarna and Zip Pay, do not appear on your credit file or impact your credit score, especially if you are only making a small purchase.

Most BNPL providers only access your credit file to conduct what is known as a ‘soft enquiry’ where they check for serious adverse credit histories such as bankruptcies or debt agreements to check your eligibility for the service; These do not show up as a full (or ‘hard’) credit enquiry and therefore do not lower your credit score.

If your BNPL service remains in good order, it is unlikely to have any impact at all on your credit score. However, if you default on your repayments, it is possible that this will be recorded on your credit report and will negatively impact your credit score. 

Furthermore, If you are making a large purchase using a BNPL service, the provider may conduct a full credit check which will impact your credit score. It is important to check the terms and conditions for your BNPL provider to understand whether a full credit check will be conducted before deciding whether to proceed.

It’s also worth noting that there are currently proposals in place that would require BNPL providers to conduct a more comprehensive credit check in certain circumstances, and would also impose stronger requirements for reporting adverse conduct on BNPL facilities, so the relationship between BNPL services and credit reports/credit scores may change in future.

It’s also important to note that even if they do not appear on your credit report, BNPL facilities may have an impact when you are applying for a home or investment loan.

Most Australians will have applied for credit products at some point in their lives or held utility accounts or postpaid mobile phone or internet plans.

All of these sorts of activities will usually lead to the creation of your credit file.

If you have never applied for credit products in Australia, it is possible that you do not have a credit file.

This is common for people who have recently arrived in Australia or for young people applying for credit products for the first time.

A small handful of other scenarios can lead to people not having a credit file even where they have previously held credit products.

Such scenarios include errors in reporting or where it has been difficult for credit reporting bodies to accurately track someone’s credit activities due to changes to their name, location or other key information.

If you don’t have a credit file and you think you should because you have previously held credit products, you can contact your credit providers and clarify your details, then ask them to report your credit information to a credit reporting body to create a file.

In that case, credit providers will not be able to access your credit report or credit score to assess your creditworthiness when deciding whether to approve a new credit product such as a loan. This can make them very cautious. Generally, a file will only be created when they process your application, so it will not yet contain any other information. 

The good news is that this is not always a dealbreaker for credit providers, and many understand that there are legitimate reasons you may not have a credit file.

Often this occurs when there are multiple people with similar names and dates of birth, or where there has been fraud or identity theft.

It is vital to check your credit report regularly to ensure the information it contains is correct so that any errors can be identified as quickly as possible.

In the case that your credit report does contain errors, you have the right to dispute it with the credit provider who listed the incorrect information or the credit reporting body that provided the report.

The credit reporting body will usually ask you to provide any available supporting documentation or evidence to help prove that the information on the report is incorrect.

If you are successful, the incorrect information will be updated or removed, and your credit score will be revised to reflect these changes.

Moneysmart has provided this helpful step-by-step guide to disputing incorrect information on your credit report: https://moneysmart.gov.au/managing-debt/credit-repair

Disputing incorrect information on your credit report is a free service provided by the credit reporting bodies in Australia (Equifax, Illion and Experian).

You should not be asked to pay any money to dispute an incorrect credit report with a credit reporting body.

If you have been asked to pay for this service, it is likely you have engaged a Credit Repair Agency/Company instead of directly contacting a credit reporting body.

These businesses charge fees to assist people with fixing errors or ‘cleaning up’ their credit reports.

Suppose you decide to engage a credit repair agency or company in Australia. In this case, it is important to know that you have some free options to try yourself first if you wish to do so and to ensure the company you use is appropriately licenced if you decide to proceed.

The Moneysmart article linked above provides instructions on how to check this.

In recent months, several high-profile data breaches have left many Australians concerned about the risk of identity fraud and the potential impact that this would have on their credit report and credit score.

If you have been the victim of identity theft, or have reasonable grounds for concern that someone may attempt to apply for a credit product in your name, you can place a credit ban, also known as a temporary freeze or lock, on your credit file.

A credit ban means that credit reporting bodies will not share any information with credit providers during the ban period, and will alert them to the fact that your credit is locked due to the risk of potential fraud.

A credit ban does not affect your ability to access and use any of your existing credit products such as your loans or credit cards, but it mitigates the risk of anyone applying for additional credit in your name during the ban period.

A credit ban is initially valid for a 21-day period, but you can apply to have this extended if required. You will usually need to provide supporting evidence, such as a police report or www.cyber.gov.au report number to show that you are at risk of fraud if the ban is lifted.

To initiate a credit ban, you will need to contact one of the credit reporting bodies in Australia and ask for a ban to be put in place.

Step-by-step instructions for initiating a credit ban can be found at https://www.idcare.org/fact-sheets/credit-bans-australia.

It is not necessary to contact all 3 credit reporting bodies (bureaus) in Australia to initiate a credit ban.

As outlined in the IDCare factsheet linked above, you can request that any credit reporting body places a ban across all 3 bodies.

If your credit history is less than ideal, or you just have questions about how your credit report or credit score will affect your ability to secure a home or investment loan, NBS Home Loans is here to help.

We will talk you through your options and help you decide on the right course of action for your circumstances. 

If you are not in a position to apply for a loan right now, we will continue to work with you to help you into the best possible position to make a strong home loan application when the time is right.

NBS Home Loans has written a helpful article on 5 Signs it is Time to Review Your Home Loan

NBS Home Loans has written a helpful article for Australians on Understanding Interest Rates

For an up-to-date overview of the current rates on offer, visit our Facebook page at facebook.com/NBSHomeLoans

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