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What’s A Credit Score And Why Does It Actually Matter?

credit score

By Bessie Hassan | Money Expert at

Education around credit scores and how it affects your personal finances isn’t as prevalent as it should be. With schools teaching Aussies little about loans or securing finance, it’s up to you to learn about your credit score and understand how improving it will help you improve your financial future.

What is a credit score?

A credit score is a number that allows lenders to determine how risky it will be to lend you money. Your risk is assessed based on your financial history and is represented by a numerical rating between 0 and 1,200.

How is my score calculated?

Your credit score takes into account a number of different factors including personal information such as your age, how many credit applications you’ve previously made, any overdue debts or defaults you have, your court writs and your default judgements.

However, there are a few misconceptions surrounding credit scores. For example, according to a recent survey, over a third of Aussies (34%) believe a pay rise would improve their credit score. However, your credit score is actually not affected by your income or bank balance.

Though your income does show lenders that you’re capable of paying off a debt, it does not show how responsible you have been in paying off your debts in the past. Hence, it doesn’t affect your score.

How does the scoring system work?

Your credit score is determined by the credit reporting agency Equifax. Equifax uses its scoring system to provide you with a score of between 0 and 1,200. The higher your score, the less risk you pose to potential lenders.

For instance, a score of between 833 and 1,200 puts you in the “excellent” category, suggesting that it’s highly unlikely you’ll default on a loan. On the other hand, a score of between 0 and 509 suggests you may be more likely to default on your loan.

Why does it matter?

Knowing your credit score is the first step to improving it. Getting your credit score doesn’t require much effort or time (despite popular belief!). To access your credit score for free, all you need is an email address, your name, sex, date of birth, driver’s licence and your address – it’s that easy.

If you have a low credit score, this typically means you have negative listings on your credit file. Though you can’t remove these, you can figure out which listings can be improved. For instance, reducing your credit card limit will indicate that you are a responsible borrower, as will making sure you make all of your repayments on time.

A good credit score can have a variety of benefits, and allow you to:

  • Get a discount on your home loan. A good credit score shows that your financial situation is steady, so you should have a better chance of negotiating a better rate with your home loan provider. You might even be able to get certain fees waived.
  • Consider a peer-to-peer loan. This relatively new type of lending bases your interest rate on your credit score. Therefore, if you have a high credit score, you could get a rate as low as 4% p.a. for an unsecured personal loan. A more competitive rate could save you loads over the life of the loan.
  • Make the most of your credit card. If you’re looking to get a credit card or to upgrade your current one, a rewards card may be beneficial to you. Paying your balance in full each period means that you won’t have to pay any interest. Additionally, it can further improve your credit score, since you’re proving that you can pay off your debts on time.

Ultimately, your credit score matters because it represents how responsible you are as a borrower. By knowing what your credit score is, you can improve it and reap the benefits that come with maintaining a healthy score. Check your score today and get active in improving it – the rewards are certainly worth it!



About the author: Bessie Hassan is the Money Expert at – Australia’s most visited comparison website – and is a respected media commentator who regularly appears on radio, TV and throughout digital publications sharing her best money-saving hacks and advice. 

This blog post is for general information purposes only and is not intended as financial or professional advice. It has not been prepared with reference to the financial circumstances of any particular person or business and should not be relied on as such. You should seek your own independent financial, legal and taxation advice before making any decision about any action in relation to the material in this article.


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