You may have heard of a credit score; you may even know what your credit score is. But understanding exactly how it works can give you invaluable insights into how lenders assess your applications, what makes a credit score good or bad, and how you can improve yours if it’s taken a beating.

In this article, we’ll discuss:

What is a credit score?

A credit score is a number that is calculated by one of Australia’s credit reporting bureaus - Equifax, Experian, or illion - to represent your trustworthiness as a borrower. All three of these agencies operate completely independently from each other, which means you may have up to three credit scores with each one that differs slightly. We’ll get to why in a moment.

Your credit score is generated based on the information in your credit report. Think of your credit report as your school report card and your credit score as your final grade. It will typically range from zero to 1,000 or 1,200 (depending on the credit reporting bureau). It’s used by lenders to determine your eligibility for certain credit products, as it gives them an indication as to your financial management skills.

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. But if you have a ‘bad’ credit score, you’ll likely need to pay a higher interest rate, have little to no negotiation power, and even be limited in your borrowing power as well as which lenders you can borrow through.

How is your credit score generated?

As we mentioned, your credit score is generated based on your credit report. Credit reporting bureaus draw up your credit report and subsequent credit score based on the information reported to them; this is why you may have a slightly different score with each agency. Let’s illustrate this with a quick hypothetical example.

Let’s say you have a personal loan. You’ve been a diligent borrower in the past, but come into some money troubles and end up defaulting on your loan. Your lender only reports this default to Equifax, which then goes onto your Equifax credit report. So, your credit score with Equifax is worse than your credit scores with Experian and illion.

This is the short answer to how your credit score is generated; the long answer is a little more complicated.

To understand this, we must discuss the two types of credit reporting used in Australia: comprehensive credit reporting (CCR) and negative credit reporting. All credit reports and scores used to be generated using negative credit reporting, but CCR was introduced to provide a more comprehensive understanding of a person’s borrowing and repayment history, hence the name.

Negative credit reporting

What was once the norm (and is still used by some small lenders), negative credit reporting means a lender is only submitting the negative borrowing habits of a person to credit reporting bureau/s. These negative events could include:

  • Making late repayments

  • Missing repayments

  • Applying for multiple loans or credit cards within a short timeframe

  • Rejections for loans and credit cards

  • Missed bills of $150 or more that are more than 60 days overdue

  • Bankruptcy or serious credit infringements

This information can stay on your credit report for up to seven years and will therefore impact your credit score during this time.

Comprehensive credit reporting (CCR)

Comprehensive credit reporting, also known as positive credit reporting, provides potential lenders with a more comprehensive picture of a person’s borrowing history. Not only will a borrower’s negative behaviours be reported, but also their positive ones. This way, any assessing lenders or people viewing the credit report will have a better idea of said persons' behaviour and trustworthiness as a borrower.

On a positive credit report, the following information will likely be included:

  • The dates accounts were opened and closed

  • Credit limits (not how much you pay off)

  • Frequency of repayments

  • Credit type that was applied for

  • Up to 24 months of repayment history

Despite being introduced back in 2014, most lenders were pretty slow to jump on the CCR train. To hurry the process along, it was mandated that the big four banks had to fully adopt CCR into their credit reporting systems by September 2019 - and they did. But by September 2022, all lenders will be mandated to use CCR when reporting credit information.

How many credit reports do actually you have?

Since there are three credit reporting agencies - as well as two different types of credit reporting - you could potentially have up to six credit reports; one of each type (positive and negative) with each credit reporting bureau.

Most lenders will only use one credit reporting bureau to access your credit report - because getting a copy of your credit report costs money. You can access your own credit report for free once a year, but lenders need to pay to access this information. Hence why they only look at one or maybe two of your credit reports, but only with one credit reporting bureau.

Credit scores and credit reports can be confusing and complicated. Not to mention they’re still a bit of a mystery. Most credit reporting agencies are pretty hush-hush about how they actually score you - though we have a general idea.

What information makes up your credit score?

Unfortunately for us, credit reporting agencies are kind of like Mr Krabs - they keep a tight lock on their secret formulas. While we don’t know exactly how they come up with your credit score, we do have a general idea of what actually affects your credit score. So there’s no need to go all Plankton and try to steal the formula.

Factors that can affect your credit score include:

  • Repayment history

  • Total amount owed

  • Length of credit history

  • Types of credit

  • New credit

All of these factors combined will spit out a credit score with each credit reporting bureau. But the weight of each factor can differentiate between agencies.

What is considered a ‘good’ credit score?

Credit scores are outlined on a five-point scale: excellent, very good, average, fair and low. With this in mind, we’ll consider all credit scores ranging from excellent to average to be a ‘good’ credit score.

Not only does each credit reporting bureau calculate their scores differently, but they also have different scales through which they measure their credit scores.

Credit score range





800 to 1,000

833 to 1,200

800 to 1,000

Very good

700 to 799

726 to 832

700 to 799


500 to 699

622 to 725

625 to 699

Generally, a credit score between 500 and 700 is considered to be average. An average credit score may be the minimum required to get a loan through a big bank or major lender - or at least one with a decent interest rate. It may also influence your eligibility for a home loan.

If you have a ‘good’ credit score, chances are you’ve been an astute borrower - paying back your loans on time, sticking to your credit limit, never applying for too many loans at once, and so on. As a result, you may be offered a competitive interest rate on your credit products and have a wider variety of options to choose from.

What is considered a ‘bad’ credit score?

On the lower end of the scale are the categories of ‘fair’ and 'low'.

Credit score range





300 to 499

510 to 621

550 to 624


0 to 299

0 to 509

0 to 549

When you have a ‘bad’ credit score, you’re seen as a higher risk to prospective lenders. This is why as a general rule, the lower your credit score is, the higher the interest rate you’ll be charged and vice versa. Your ‘riskiness’ is reflected in your interest charges.

To get a low credit score, you may have had trouble managing your financial commitments in the past. Maybe you missed a few repayments, defaulted on a loan or two, or were even declared bankrupt at one stage in the past seven years. As a result, you’ll likely be quite limited in your borrowing options - only having a select handful of lenders to choose from - and you’ll likely need to pay a higher interest rate.

All lenders are required to adhere to responsible lending obligations, which involves making sure a credit product is suitable for the borrower. Depending on the severity of your financial situation, you could have trouble securing finance at all.

Can you improve your credit score?

No need to fear - even if you have had some trouble managing credit in the past, credit scores can definitely be improved with time, consistency and effort.

Your credit score is simply made up of the information on your credit report. With CCR rising in prevalence, more and more lenders are reporting positive credit behaviour. This should make it easier to improve your credit score with good management of your credit.

Here are a few tips to improve your credit score that you may like to consider:

  • Check your credit report for any errors or inaccuracies

  • Pay existing debts on time

  • Pay other bills - like utility or internet - on time

  • Minimise new credit applications

  • Lower your credit card limit/s

  • Ask for help if you’re struggling

While there’s no easy fix for a low credit score, demonstrating positive borrowing behaviour should be reflected in your score over time. Improving your credit score is somewhat like losing weight; it takes time, dedication and maintaining good habits - and you may not see the results for a while. But it can and has been done.

How is it different from a credit report?

The score is the individual number contained within the credit report, which also collates all your information within it. You’ll have more than one credit report out there too; ASIC’s MoneySmart lists four different recognised credit reporting agencies:

These agencies may outsource their credit reporting tools to other companies.

According to MoneySmart, a credit report includes:

  • Your personal details (name, DOB, addresses, employment etc.)
  • Any credit or loans you’ve applied for
  • Any missed payments
  • Defaults within the last 60 days
  • Other credit infringements (e.g. leaving your last known address without paying a debt)
  • Bankruptcies, court judgements, insolvency agreements etc. (these can stay on there for as long as seven years)

All of this information, combined, leads to a final credit score, which will lie somewhere between 0 and 1,200. MoneySmart has a sample Equifax credit report which you can view here.

Why is it important to understand how your credit score works?

Understanding your credit score can be helpful so that you know how to improve it and/or maintain it. When you want to borrow money - from a bank or other financial institution - your credit rating may be one of the most important scores you ever receive. Forget that bad English grade you received in high school - your credit score actually matters in the real world.

When it comes time to buy your dream home, you don’t want to be held back by the silly financial mistakes of your past. As we mentioned, some information will stay on your credit report for up to seven years. So even if it may not seem super important right now, keeping your credit score in check should probably be on your to-do list if you have plans of borrowing in the future.

If you take nothing else from this article, the crux of it is: don’t bite off more than you can chew. Only take out a loan or credit card when you need it and can realistically manage to pay it back. And if you are struggling and need help - reach out to your lender or utility provider. They may be able to help you with a financial hardship arrangement or a flexible repayment plan.

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