Month: September 2021

If you understand your credit score, then you can utilise your credit rating to its full potential. However, it can be hard to find how credit scores in Australia work. That’s because an internet search can often produce results based on credit scores in the United States. Although there are many similarities between credit scores in Australia and the US, there are some key differences. Today, we’ll take you through what those are.

Credit bureaus in Australia vs the US

In Australia, the three credit bureaus are Equifax, Experian and illion. America also has three major credit bureaus – two of which you might recognise – Equifax, Experian and TransUnion.

We’ve already covered Equifax and Experian quite a lot here at Tippla, so we’ll introduce you to TransUnion. Operational in more than 30 countries, TransUnion is an American consumer credit reporting agency. The company collects and aggregates information for more than one billion individuals across the world.

In the US, credit bureaus perform a similar role to Australia. Specifically, the bureaus collect credit information, generate credit scores and reports, to allow credit providers to properly assess the risk associated with potential borrowers.

Credit Scores in Australia

In Australia, you have three credit scores, one each from Equifax, Experian and illion. Credit scores in Australia are calculated by each of the bureaus using their own algorithms. Your credit scores are based on the information on your credit report.

This information includes:

• Credit accounts;
• Credit enquiries;
• Repayment history;
• Defaults;
• Negative entries.

Your credit score is one of the multiple factors used by credit providers to decide whether they will accept your application when you apply for credit (a loan, credit card, utilities, post-paid phone plan and more). They might also check your bank statements, employment status and eligibility, among other criteria.

Credit scores in the US

Although your credit score is important here in Australia, in the United States, it can carry a lot more weight. Furthermore, the credit bureaus across the pond have a system that they commonly use to calculate credit scores – Fair Isaac Corporation (FICO).

Whilst America also uses Comprehensive Credit Reporting (CCR), they do calculate credit scores differently, and some of the information they include on credit reports is different from how we do it in Australia.

Here are some of the things that go onto your credit report and make up your FICO score:

• Payment history
• Amount owed
• Length of credit history
• New credit
• Credit mix

Just like in Australia, the three CRAs in the US collect information differently. Therefore, American residents can have three different FICO scores, depending on which bureau they check with.

What are the differences between Australia and the US?

You already know a few differences already between credit scores in Australia and the US. But let’s look into the main differences a little deeper.

Credit utilisation

The credit utilisation rate (or ratio) is the amount of credit you have currently used divided by the total amount of revolving credit you have used. As an example, say you have a credit card with a limit of $10,0000, but you only spend $3,0000 every month, then your credit utilisation ratio is 30%.

In America, your credit utilisation rate carries a lot of weight when it comes to your credit score. However, in Australia, your credit utilisation ratio does not factor into the calculations of your credit score.

Credits score calculations

As we already highlighted, in the US, they mainly use the FICO system to calculate credit scores. In Australia, the bureaus do not use this system to calculate your credit scores.

Different scales are used

For credit scores in Australia, Equifax uses a scale ranging from 0 – 1,200 to rank credit scores. Experian and illion use a scale spanning from 0 – 1,000. The FICO system, however, uses a range of 300 to 850. On this scale, anything above 720 is deemed to be an excellent credit score.

Credit scores in Australia vs the US

Whilst there are some similarities between credit scores in Australia and in the United States – there are some key differences in the way credit scores are used and calculated. Because of this, when doing your own research on credit scores – be sure to check that you are looking at Australian resources. This way you know you’re getting the right information for you.

Does my Australian credit score count overseas?

Unfortunately, there isn’t an international credit score. Therefore, your Australian credit score won’t count if you move overseas. This means if you move overseas, you will need to build your credit history from scratch. 

Credit scores don’t work the same across the world. Australia, the United Kingdom, Canada and the United States have similar credit scoring systems – but there are key differences between them. That’s why it’s a good idea to research what the credit scoring system is in whatever country you live in, to ensure you’re protecting your credit score.

We have covered what can affect your credit score frequently here at Tippla. But one question we get asked a lot is “how often does my credit score change?” You asked, so we have answered!

Who calculates your credit score?

Your credit score is a number ranging from 0 – 1,200. In Australia, your credit scores are calculated by three companies – Equifax, Experian and illion. These three companies are known as credit bureaus or Credit Reporting Agencies (CRAs).

Equifax, Experian and illion collect your credit information from credit providers across Australia. Credit providers can be banks, non-bank lenders, credit unions, utility companies and more.

The credit bureaus in Australia collect your credit information and use it to create your credit report. Your credit report is a document outlining your recent credit history. The information on your credit report is used by each of the CRAs to calculate your credit score.

Because there are three credit bureaus in Australia, you have three separate credit scores and reports – one with each credit bureau. Your credit scores and credit reports can vary among the credit bureaus. For a full breakdown of why that’s the case, take a look at our guide outlining why your credit scores are different.

Equifax have provided the following information on how they calculate their Credit Score.

“The Equifax Credit Score is a numerical expression of your risk profile and ability to repay a debt. The higher the score the lower the risk. Our unique algorithm looks at the relative rating of your credit behavior against the ratings of the entire Australian population – with scores generated on request and at a point in time, to ensure the most comprehensive and accurate assessment”. 

What information goes onto your credit report?

Your credit score is calculated using the information on your credit report. But what exactly is this information? To put it simply, it’s your recent credit history. When you take out a loan, credit card, utilities, post-paid phone plan and more, this is a type of credit. The way you manage that credit is what goes onto your credit report.

Specifically, here’s what information goes onto your credit report:

• Credit accounts – if you currently have a loan, an active credit account, or a post-paid phone plan, then this is referred to as a credit account. Your credit report will list all of your open (current) credit accounts, as well as any accounts you have closed in the last two years;
• Credit enquiries – whenever you apply for credit, this is called a credit enquiry. Credit enquiries will appear on your credit report for up to five years;
• Repayment history – each time you make your fortnightly or monthly repayment for your loan, credit card, phone plan, or utilities, this is your repayment history. Your repayment history over the last two years will appear on your credit report.
• Defaults – just like your repayment history appears on your credit report, so do your defaults. If you default on a repayment, then this will feature on your credit report for up to five years.
• Negative entries – Negative entries can include court judgements, bankruptcies and serious credit infringements. Depending on the information, it can appear on your report for typically five to seven years.
• Personal Information- Name, address, date of birth and employment.
• Credit Report Age – How long you have held a credit history.

How do credit bureaus get my credit information?

So how exactly do the credit bureaus get your credit information? They get it from the source. If you have a credit card with a bank, then each month, that bank will send your updated credit information to the credit bureaus. This goes for all credit providers.

That information can be anything that we outlined above – your repayment history, whether the account is open or you closed the account within the month and more.

When exactly credit providers send the information will depend on the company. Some might create their reports at the beginning of the month, some could send it towards the end. The timing will depend on their own reporting procedures.

It’s important to highlight here that credit providers don’t necessarily send your credit information to all three of the credit bureaus. Whilst some banks and credit providers will report your credit information to Equifax, Experian and illion, some might only report to one or two of the credit bureaus. That’s one of the reasons why your credit score can vary among the CRAs.

How often do credit bureaus update my credit report?

Because the credit bureaus receive new credit information each month, your credit report is updated around once a month. Each time your credit report is updated, the new information will be added to your credit file. 

Furthermore, all of the information on your credit report expires after a certain time. Sometimes when your credit report is updated, some information may be removed from your credit report because it has expired.

How often does my credit score change?

Your credit score is based on your credit report. Therefore, because your credit report is updated on a monthly basis, then your credit score can change each month. Whether your credit score changes will depend on what new information the bureau receives.

If any negative information has been reported to the bureaus over the past month, then your credit score might have dropped. Or, if positive information is reported, or previous negative entries expire on your credit file, then your credit rating could have received a boost.

How often does my credit score change on Tippla?

On Tippla, we get your credit report and credit score information directly from Equifax and Experian every 90 days. We refresh your credit reports every three months, based on the information provided to us by the two credit bureaus.

Therefore, if you take out a new type of credit, such as a credit card, or a negative entry is set to expire, this may not appear on your credit report straight away. The information will be updated whenever the latest 90 day period has ended.

What if there’s a mistake on my credit report?

Sometimes, new information will be added to your credit report but it won’t be correct. This can happen for a number of reasons, but it’s actually quite common. 1 in 5 credit reports have some kind of mistake on them.

So what can you do if there’s a mistake on your credit report? Firstly, don’t panic. You can get mistakes removed from your credit file. There are two steps you can take to have a mistake removed from your credit report.

1. Reach out to your credit provider – if the mistake involves a credit provider, such as an incorrect default, a credit enquiry you never made, or an issue with your credit accounts, then you can reach out directly to the company involved. If they agree that a mistake has been made, then they will alert the credit bureaus of the mistake and your credit report will be updated.
2. You can also reach out to the credit bureaus directly and ask them to handle the issue.

If you want to reach out to Equifax, you can request a correction to your credit report here. If it’s Experian you want to handle the mistake, then you can send them an email at this address creditreport@au.experian.com. 

Your credit score can have far-reaching implications for numerous aspects of your life. It can be the difference between you being accepted or rejected for credit. That’s why it’s important to know how credit scores in Australia work. That’s why we’ve put together this handy overview of how credit scores work. 

Who calculates your credit scores in Australia?

In Australia, you have three credit scores and credit reports. Why’s this? Because there are three credit bureaus, also known as Credit Reporting Agencies (CRAs) in Australia. The three credit bureaus in Australia are Equifax, Experian and illion. Your Equifax credit score will range between 0 – 1,200, whereas your Experian and illion will fall somewhere between 0 – 1,000.

 A credit bureau is a company that collects information associated with the credit scores of individuals. This means if you have any type of credit (a loan, credit card, utilities, etc) then the company you have this credit with (bank, non-bank lender, utility company, etc) will report the information associated with the credit to the credit bureaus. This can be your repayment history, credit limit and more.

The CRAs then collect this information and use it to generate your credit reports and calculate your credit scores. They then make your reports and scores available to credit providers (following your consent) to help them make informed decisions. You have one credit score and one credit report with each of the three bureaus. 

How do the CRAs calculate your credit score?

Equifax, Experian and illion each individually calculate your credit scores. They calculate your credit scores based on the information contained on your credit report. This includes:

• Your active credit accounts, as well as any accounts closed in the last two years;
• Your repayment history from the past two years;
• Credit enquiries – every time you apply for a loan or other form of credit, it will appear on your credit report and remain there for five years;
• If you have defaulted on a credit repayment, it will appear on your credit report;
• Negative entries such as bankruptcy, court judgements and serious credit infringements will appear on your credit report.

The exact formula each of the credit bureaus use to calculate your credit score remains a well-kept secret, however, Equifax has provided the below overview of how it typically calculates credit scores in Australia.

What harms your credit score?

Following the introduction of Comprehensive Credit Reporting (CCR), a combination of positive and negative information goes onto your credit report and is used to calculate your credit report.

Some good habits, such as consistently meeting your credit repayments, having a good mix of credit accounts (but not having too many), and not too many credit enquiries on your report can all contribute positively to your credit score.

However, there are also some things that can harm your credit score. We’ve listed some of the items that can harm your credit score below:

• Credit enquiries – when you apply for credit and the company you apply with checks your credit report, this is known as a hard enquiry. Hard enquiries harm your credit score, and the more applications you make in a short period of time, the worse the damage.
• Defaults – if you default on one of your credit repayments, then this will appear on your credit report and lower your credit score. Defaults will remain on your credit report for up to five years.
• Too many credit accounts – if you have too many credit accounts, such as multiple loans and credit cards, then this could indicate that you’re in financial stress. Therefore, when calculating your credit score, too many accounts can lower your score.
• Negative entries such as bankruptcy, court judgements and serious credit infringements can also harm your credit score as they suggest that you have not been able to handle your debt effectively in the past.

If your credit score isn’t where you want it to be, check out Tippla’s guide on how to improve your credit score.

What is a good credit score?

A good credit score in Australia varies among the bureaus. Specifically, your credit score will fall somewhere on a five-point scale. This scale ranges from below average, average, good, very good and excelled.

Here’s how Equifax and Experian rank your credit scores:

A good credit score for illion ranges from 500 – 699, whereas a great credit score falls between 700 – 799 and an excellent score sits from 800 – 1,000.

What are credit scores used for?

Your credit score is used to assess your creditworthiness (translation: how reliable of a borrower you are). Your credit score provides an overview of how well you have managed your credit debt in the past and therefore indicates how likely you will be to repay any further debt you take on.

What does this mean in basic terms? When you apply for a loan (such as personal loans or home loans), credit card, or any other form of credit, the company you are applying with want to know how likely you are to make your repayments. 

A good credit score (or higher) indicates that you will likely make your repayments and you’re therefore a lower risk. An average or below-average credit score can imply that you might struggle to make your repayments, and could be at risk of defaulting.

With this in mind, your credit score is one of the factors credit providers use to assess how big of a risk you are and helps them determine whether they will accept your reject your credit application.

Who can view your credit score?

The purpose of your credit scores in Australia is to help credit providers determine how risky of a borrower you are. Therefore, the only companies that can view your credit score are the ones you have applied for credit with.

When you apply for credit, typically in the terms and conditions, you will consent to having your credit score and report checked by the company. Some credit providers will only look at one credit score and report, however, others might look at two or all three. That’s why all of your credit scores matter, and no one score matters more than the others. 

In Australia, you have three credit scores – one each from the three credit reporting agencies (CRAs), also referred to as credit bureaus – Equifax, Experian and illion. Today, we’re going to explore which credit score matters most out of the three.

What is a credit score?

Let’s cover some basics first – what is a credit score? A credit score is a number that falls somewhere on a scale between 0 and 1,200. This number represents your creditworthiness, which basically means, how reliable of a borrower you are. The higher your credit score, the more reliable you are perceived to be.

Your credit score is calculated by the information contained in your credit report. Banks, non-bank lenders, credit unions and other credit providers are required to report their credit information to the CRAs in Australia. The information they report includes credit enquiries, credit accounts, defaults, repayment history and more.

Your Equifax credit score

Equifax is the largest of the three credit bureaus in Australia, with a presence around the world. Your Equifax credit score is based on the information reported to Equifax by credit providers and calculated using the company’s credit scoring algorithm.

Whilst we don’t know the exact algorithm used by Equifax, the company has outlined the general factors considered in credit score calculations as follows:

• The number of accounts you have;
• The types of accounts;
• The length of your credit history;
• Your payment history.

Furthermore, the CRA has provided the following information on how they typically calculate your credit score:

Your Experian credit score

Experian is another credit bureau in Australia that calculates your credit score and report. Whilst the company is similar to Equifax, it is known for being the more data-driven out of the three credit bureaus in Australia.

Experian calculates your credit score using its own statistical algorithm based on your credit history.

As highlighted by the bureau itself: “Your Experian Credit Score is calculated applying a statistical algorithm that uses past events to predict future behaviour. Each credit bureau uses a slightly different algorithm and does not disclose in detail how this is calculated.”

Nonetheless, Experian outlines the following key attributes that are used to generate your credit score. This includes:

• Type of credit providers that have made enquiries on your report;
• The type of credit you have applied for;
• Your repayment history;
• The credit limit of each other credit products;
• Negative entries;
• The number of credit enquiries (credit applications) you have made.

Your illion credit score

illion outlines on its website that it determines the credit ratings of individuals by looking at whether you are reliable with paying your bills. 

Specifically, the credit bureau states that the following events could harm your credit score:

• Not paying your bills on time, or failing to pay them at all;
• Applying for credit too often;
• If someone else defaults on a joint debt.

Why is my credit score important?

Let’s now take a look at why your credit score is important. A lot of people might have heard about their credit score, some people might even know what their credit score is, but a lot of people might not know why their credit score matters.

Your credit score and accompanying credit report is one of the key ingredients that lenders and credit providers use to determine whether to accept or reject your credit application. Whilst your credit score isn’t the only factor they consider, it is an important piece of the puzzle.

Because of this, your credit score and report can be the difference between you being accepted and rejected for credit. That’s one of the main reasons why your credit score is important.

Which credit score matters most?

Out of your three credit scores, which one matters the most? Unfortunately, it’s not such a clear-cut answer. When you apply for a loan, credit card, or another type of credit, the company you are applying to will check your credit score and credit report.

It will depend on the company as to which credit report they will check. Some companies might only check one of your credit reports and scores, however, others might check two, or even all three.

Therefore, when it comes to which credit score matters most, the simple answer is – all of them. Any of your three credit scores can be used to assess your creditworthiness. That’s why it’s important to ensure that all the information on each of your credit reports is accurate and up-to-date. 

How to improve your credit score

If you have taken a look at your credit score, and you want to know how to improve it, here are a few ways you can improve your credit score.

Space out your credit applications

Did you know every time you apply for credit, it registers as a hard enquiry on your credit report? Hard enquiries harm your credit score, and they remain on your credit report for up to 5 years. This means, whenever you apply for new credit, the company you’re applying with can see your previous applications over the past 5 years.

With this in mind, if you want to limit the damage to your credit score, then you can space out your credit applications. 

Don’t take on too much credit

If you have too many open credit accounts, such as multiple loans or credit cards, then it can negatively affect your credit score. Having too many credit accounts at once can make it appear like you are in financial distress, or have difficulty managing your finances. Therefore, you are perceived to be a more risky borrower.

One way to avoid this preconception is to only take out credit when you need it. This way, you could avoid having too many credit accounts open at once.

Make your repayments on time

Your repayment history is one of the factors the credit bureaus consider when calculating your credit score. Therefore, in order to improve your credit score, or maintain a good credit score, you could make sure that you make your repayments on time.

If you can demonstrate that you can effectively manage your debt by consistently meeting your repayments, this can go a long way to proving your creditworthiness.

Have you noticed a drop in your credit score? You might be wondering why it has fallen – Tippla has put together a number of reasons why that might be.

Your credit score is an important number and can have far-reaching implications. Today, Tippla is going to answer the question “why has my credit score fallen”, but first, let’s go over some important information.

What is a credit score?

A credit score is a number ranging from 0 – 1,200. This number is a representation of your creditworthiness (translation: how reliable of a borrower you are). In Australia, your credit score is calculated by three credit bureaus – Equifax, Experian and illion. Therefore, you have three unique credit scores and credit reports.

Why is my credit score important?

You might be wondering why is your credit score important. Putting it simply, when you apply for some kind of credit, such as a loan, credit card, utilities and more, your credit score is one of the factors that lenders look at when deciding whether to approve or reject your application.

Whilst it isn’t the only factor that lenders consider – it is an important factor. Having a good credit score could be the difference between you being approved or rejected. 

Not only that, but your credit score can influence the finance available to you. If you have a bad credit score, then you will likely be deemed as a higher risk. Because of this, credit providers will typically only offer you products with higher interest rates, lower borrowing limits, and stricter conditions in a way to offset the risk they perceive you to be. Therefore, you will likely have limited choices that can be more costly than if you had a good credit score.

Not sure what is a good credit score? Equifax and Experian calculate your credit scores differently. Here’s how they categorise credit scores:

How is a credit score calculated?

Let’s take a quick look at how credit scores are calculated. Whilst the exact formula of how credit scores are calculated remains a well-guarded secret, and each of the bureaus uses different algorithms to calculate your scores, we do know a few things.

Namely, your credit score is calculated based on the information on your credit report. The information on your credit report is what affects your credit score.

Here’s what goes onto your Equifax credit report:

• Type of credit provider
• The type and size of credit requested in the application
• Number of credit enquiries and shopping patterns
• Directorship and proprietorship information
• Age of your credit report
• The pattern of credit enquiries over time
• Personal information
• Default information
• Court writs and default judgements
• Commercial address information

Here’s what goes onto your Experian credit report:

• Type of credit provider
• Type of product that was applied for
• Repayment history
• The credit limit on each of the credit products
• Amount of credit enquiries
• Any negative events

How Equifax calculates your credit score

The credit bureaus use this information on your credit report to calculate your credit score. Equifax has given us the below information into how they typically calculate a credit score:

How Experian calculates your credit score

Experian, on the other hand, has outlined the following: “Your Experian Credit Score is calculated by applying a statistical algorithm that uses past events to predict future behaviour. Each credit bureau uses a slightly different algorithm and does not disclose in detail how this is calculated.”

However, the credit agency has outlined the following as key attributes it uses to generate your credit score:

• Type of credit providers that have made enquiries on your report
• The type of credit you have applied for
• Your repayment history
• The credit limit of each other credit products
• Negative entries
• The number of credit enquiries (credit applications) you have made

Why has my credit score fallen?

Now you know what information goes onto your credit report, and therefore, what can influence your credit score, let’s now tackle the question “why has my credit score fallen?”.

Unfortunately, there is no single reason as to why your credit score could have fallen. The exact reason will depend on your personal circumstances. However, there are a number of things that can harm your credit score. Let’s look at these first.

Firstly, let’s see what harms your Equifax credit score: 

• Late repayments
• Applying for a large amount of credit in a short period of time
• Closing a credit account
• Stopping credit-related activities for an extended period
• Negative public records, such as bankruptcy

And now let’s check out what harms your Experian credit score:

• A large number of credit applications in a short period of time
• Open accounts with debt collection agencies
• Short term credit
• Missed payments
• Bankruptcy actions
• Defaults
• Court judgements

Common reasons why your credit score could have fallen

So what are some of the common reasons why your credit score has fallen? We’ve put together a list below. Whilst this list gives a good overview, it is not exhaustive, and might not apply to your individual situation.

• Making too many credit applications in quick succession – have you recently applied to multiple lenders for a loan, a credit card, or some other form of credit? Each time you apply for credit, it registers as a hard enquiry on your credit report and lowers your credit score.
• Defaulting on a credit repayment – did you miss a repayment on your loan or credit card? This could appear on your credit report as a default and harm your credit score;
• Having too many credit accounts open – if you have multiple loans, or multiple credit cards, as an example, open in your name then this could be harming your credit score. Having too many credit cards can indicate that you are in financial distress and therefore, are a risky borrower;

For a more in-depth guide on negative entries that can harm your credit report, check out one of our recent articles on negative entries on your credit report.

Can I improve my credit score?

Yes, you can improve your credit score! Whilst it won’t necessarily be an overnight fix, it can be done, and most of the fixes can be done yourself for no cost at all. If you’re thinking of paying a company to help you fix your credit report, then check out our article on whether credit repair companies are worth it.

Here are some things you can do to improve your credit score.

Space out credit applications

Every time you apply for credit, with limited exceptions, the company you are applying with will check your credit report to get an overview of your credit history and determine if you are a risk. This is called a hard enquiry.

A hard enquiry harms your credit score. Therefore, in order to limit the damage to your credit score, the fewer applications you make, the better. That doesn’t mean that you shouldn’t ever apply for credit, but instead, do your research beforehand and find the best deals suited to your requirements, and check that you meet the eligibility criteria.

Don’t take on too much credit at once

Having multiple loans, credit cards or a mixture of multiple credit accounts can be damaging for your credit score. Why is this? Because it can appear like you are in financial distress. Therefore, one way you can avoid having too many credit accounts open at once is to only take on credit when you really need it, or there is a clear purpose for the credit.

Make your repayments on time

As we highlighted earlier, repayments decently contribute to your credit score. Therefore, in order to improve your credit score, or maintain a good credit score, you should ensure that you make your repayments on time.

Displaying that you can effectively manage your credit can go a long way in proving that you are a reliable borrower and therefore, have high creditworthiness.