When will banks in Australia start fully using your credit score?

Angus Kidman 17 May 2017

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Credit scores aren't directly matched to loans and credit cards, but that could soon change.

Most Australians are only vaguely aware of how credit scores work. Indeed, one finder.com.au survey found that 12.3% of us don't even know what one is.

Even those who have heard of credit scores are often are confused about how they work. For instance, two-thirds of us think that having a high credit card balance will affect our score, whereas in fact the key element relating to credit cards for credit scores in Australia is whether or not you make repayments on time. Your current balance isn't considered.

One reason for that misconception might be that in the US, a major factor in calculating your credit card score is the utilisation: the ratio of your balance to your credit limit. It seems we're assuming that credit scores are calculated the same way the world over, but that simply isn't the case. Indeed, many countries have multiple credit scoring systems, each with different criteria. (If you're curious about how those scores are calculated across the globe, check out our detailed guide.)

One visible difference is that in the US, many credit cards and loans will promote the credit score you'll need to have any chance of being approved. There are categories of loans available for people with a "good" credit score of between 680 and 719, for example.

So far, we haven't seen the same pattern in Australia. Financial institutions will often specify a "good credit history", and your credit score may well be a factor in that. But it's unlikely to be the only factor. In part, that's because other details may well be relevant (such as your current credit card balance). But in part, it's also because that culture of your credit score really mattering hasn't fully taken hold here.

That could change in the future. Earlier this year, Equifax, the largest credit score provider in Australia, flagged its intentions to start including a wider range of factors in Australian credit scores. That in turn would mean that a credit score on its own could start being a more important factor for banks and others when assessing applications.

While no bank is likely to rely solely on a credit score for that decision, being told that a given loan or card is only potentially available if you have a score above a given level could help consumers save time by making sure they don't try and apply for products they're not ever going to be approved for. That trend has already started in a small way, as peer-to-peer lenders do use credit score as a major part of their risk assessment for loans.

Learning what your credit score is much easier these days; you can find it out for free using finder's handy service. It will be interesting to see how the market evolves as more providers start using it directly.

Angus Kidman's Findings column looks at new developments and research that help you save money, make wise decisions and enjoy your life more. It appears Monday through Friday on finder.com.au.

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3 Responses

  1. Default Gravatar
    JamesMay 17, 2017

    It says on this page “Your score, which was calculated above, used the information on your Equifax credit report.”

  2. Default Gravatar
    HansMay 17, 2017

    Which credit bureau does Finder use to provide my credit score?

    • Staff
      HaroldMay 17, 2017Staff

      Hi Hand,

      Thank you for yourinquiry.

      Your credit score is calculated by credit bureaus such as Equifax using the information on your credit file. The higher your credit score, the less of a risk you’re determined to be.

      I hope this information has helped.

      Cheers,
      Harold

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