How to get your free credit score and understand your credit profile

Your credit score is a vital number that reveals a lot about your financial health. It influences your ability to access credit, and knowing where you stand is crucial.

However, many people are in the dark about their credit profiles and the factors that affect them.

Discover how to understanding your credit profile, how your credit score is calculated, and how to access your credit score for free.

What’s a credit score?

Simply put, your credit score – also known as a credit rating – is a numerical representation of your creditworthiness. This three-digit number, usually ranging from 300 to 850, provides lenders with a quick assessment of your credit risk.

The higher your credit score, the lower the risk you pose to creditors, making it easier to secure loans or credit cards with favourable terms. Conversely, a poor credit score may limit your borrowing options and could result in higher interest rates.

It’s a powerful tool that reflects your past financial behaviour, making it essential to manage and understand your credit profile.

How your credit score is calculated

Your credit score is not a randomly assigned number; it’s meticulously calculated based on several key factors.

These factors typically include your repayment history, which evaluates whether you’ve made your credit repayments on time, any defaults or late payments, the types of credit accounts you hold (credit cards, loans, mortgages, etc.), your credit limits, the length of your credit history, and the number of credit inquiries made by lenders when you apply for credit.

Understanding how each of these elements affects your score is essential. For instance, a consistent history of on-time repayments and a mix of credit types can positively impact your score, while frequent credit inquiries or defaults can have adverse effects.

By comprehending the factors at play, you can take steps to improve your creditworthiness and secure better financial opportunities.

Who determines your credit score?

Credit scores are not arbitrary; they are calculated by credit reporting bodies appointed with the authority to do so by the Australian government. These are the institutions responsible for safeguarding the interests of credit providers and reducing bankruptcies in Australia.

Leading credit reporting agencies

Equifax is the largest credit reporting agency in Australia and provides personal and business credit reports country-wide. Credit reporting bodies like Equifax, illion and Experian calculate your credit score by analysing the comprehensive information contained in your credit report.

This results in a numerical score, ranging from poor credit to high credit, which lenders use to assess your credit application.

What kind of credit data and information is being collected?

Details in your credit report

Credit reporting bodies compile a wealth of data about your credit history. This includes personal information like your name, date of birth, and previous addresses.

Furthermore, your credit report contains information about past credit applications, whether they were approved or denied, repayment history, and any credit infringements. It also includes vital information like loan repayment due dates, court judgments and orders, debt agreements, and insolvency agreements.

Your credit information stays on your report for up to seven years, emphasising the importance of responsible credit management.

Why should I check my credit report?

Pros and cons of checking your credit score:

Pros:

• Early detection of identity theft: By regularly monitoring your credit report, you can swiftly identify unauthorised activities or fraudulent credit applications in your name.
  Awareness of your creditworthiness: Routine checks of your credit score provide insight into your financial standing and how lenders perceive your credit health.
  Opportunity to correct errors: Checking your report empowers you to identify and dispute inaccuracies, ensuring that your financial reputation remains accurate.

Cons:

• Potential negative impact: Frequent credit checks by lenders may temporarily lower your credit score.
• Misunderstanding the score: Without adequate financial education, you may misinterpret your credit score, leading to inappropriate financial decisions.

How to manage your credit health

It’s wise to subscribe to a credit alert service or obtain a copy of your credit report at least once a year. In an age of identity theft and fraud, staying vigilant is essential.

Your credit report can notify you if someone attempts to accumulate debt on your credit card or make a loan application in your name. In such cases, reporting the matter to the police is a prudent initial step, followed by notifying the credit-reporting agencies and contacting the Financial Ombudsman Service.

Errors can also creep into your credit file, sometimes due to bank processing errors. In such cases, the first step is to engage with the credit agency, as many issues can be swiftly resolved. If the matter isn’t satisfactorily addressed, you have the right to involve the Australian Financial Complaints Authority.

If you find you’re still not getting anywhere, contact the Office of the Australian Information Commissioner; at the end of the day, your privacy is at stake.

How to check your credit report

In Australia, checking your credit score is a straightforward process. Many agencies offer a free service that allows you to access your credit score online.

You can typically request a free credit report once a year from each agency, which provides you with valuable insights into your credit health. Additionally, various financial institutions, such as banks and credit unions, often provide their customers with access to their credit scores through their online banking platforms.

Checking your credit score regularly, understanding its implications, and addressing any discrepancies or areas for improvement can significantly contribute to your financial wellbeing.

Strategies for improving your credit rating

Adopting smart financial practices after cleaning up your credit report can help improve your rating.

Improving your credit score is primarily achieved through diligent credit management. Stay on top of your financial obligations, live within your means, and regard credit as a privilege, not an entitlement.

Building a strong credit rating

Implement practices that strengthen your financial history, positioning you as an attractive prospect to lenders. These practices include:

• Consistent savings: Regularly setting aside a portion of your income into savings.
• Paying off all bills on time: Ensuring that once you’ve cleared your debts, they stay that way. Pay your credit card bill in full each month and meet all other financial obligations promptly.
• Closing unnecessary accounts: Review your credit card portfolio and consider reducing or eliminating unnecessary accounts. Multiple credit cards can tempt you to incur avoidable expenses and accumulate debt.

With effective credit management and a comprehensive understanding of your personal credit file, maintaining a healthy credit score is an attainable goal.

Remember that this article aims to provide general information and should not be considered financial advice. Always consult with a financial expert for specific guidance on your financial health and credit profile.