How to do a credit rating check in Australia

Your credit rating can be one of the key pieces of information that lenders assess when you apply for a home loan. Essentially, it reflects your borrowing and repayment history and is stated as a number, also known as a credit score. Generally, the higher the number, the better your credit rating.

A credit rating provides banks and lenders with information about your financial habits. It gives some measure of how trustworthy you are when it comes to conducting your financial affairs. For lenders, your credit score represents your financial reputation. In effect, that single number can make or break your home loan application.

Lenders regularly use credit ratings to help them measure the risk of lending to you. In practical terms, your credit score can help them assess how much they are prepared to lend you – or whether they will lend to you at all.

But it’s worth noting a person’s credit rating is not static number. It can rise or fall depending on your financial conduct. While a missed credit card payment can reduce your credit score, consistently paying any debts will get your score up again.

What is included in your credit report?

Basically, your credit report provides lenders with three categories of information about you: personal data, public record information, and credit data.

Personal data includes just that – your full name, date of birth, gender, home address (usually current and last two addresses), driver's license number, and employer details. Public record data searches for publicly available information, including whether you have been subject to court proceedings involving unsettled credit, bankruptcy, or other personal insolvency matters.

However, the most critical part of most people’s credit report is their credit history. As such, when you apply for any credit product, your lender will have access to the following information:

• Loan enquiries you have made in the last five years (including names of credit providers you have applied to)
• Details of any current debt, including name of the provider, date the account opened, the current limit of the account, the account type, and two-year repayment history showing whether you have made regular, on-time payments
• Any credit defaults and debts that are overdue by 60 days or more
• History of opening and applying for credit products including any previous loans, credit cards, and other products such as mobile plans

Financial hardship

Due to changes in the credit reporting system in July 2022, credit providers must now also report financial hardship information to credit reporting bodies. These are applications that borrowers make to lenders asking for concessions in repaying their debts on the grounds of changed or unforeseen circumstances that have caused them to face financial hardship. These may include job loss, illness, or natural disasters.

Credit providers must now provide information to credit reporting bodies when a credit account is under an agreed financial hardship arrangement, whether it is a temporary or permanent arrangement. Financial hardship information includes:

• Financial hardship indicator, showing whether the hardship arrangement was temporary or still applies
• Repayment history under the financial hardship arrangement, showing whether the terms of the arrangement were, or are being, met

How is your credit score calculated?

There are three main credit reporting agencies in Australia: Equifax, illion, and Experian. They are responsible for collecting and distributing credit data that makes up a credit report. Each agency has its own credit score calculation system, which means your credit score will vary between agencies. However, all calculate your credit score based on the information recorded on your personal file.

Credit scores range from zero to 1,000 or 1,200, depending on the credit agency. Your score will fall somewhere within a five-point grading scale: excellent, very good, good, average, and below average.

How to check your credit rating in Australia

Under federal laws, a credit reporting body must give you access to your consumer credit report for free once every three months. You can also request a free copy if:

• You’ve been refused credit within the past 90 days, or
• Your credit-related personal information has been corrected or amended in any way

At other times, a credit reporting body may charge a fee, but it mustn’t be excessive. It is worth doing regular credit rating checks to keep yourself updated on your credit record and check for any irregularities. You can check your credit rating in Australia through the following credit reporting agencies:

• Equifax
• illion
• Experian
• Get Credit Score (a free online site using Equifax data)

Take note that not all financial institutions share information with all credit reporting bodies. When choosing which one to get your credit report from, ask your lender - or potential lender - which agencies they prefer.

For you to access your report, credit reporting bodies will ask you to provide specific information such as your full name, date of birth, current and previous addresses, phone number, copies of primary identification cards, and a document which includes your name and address.

Generally, a credit reporting agency will email your credit report in up to 10 days. If you need the report sooner, you can also ask your agency if there is a fee to expedite the process. In these cases, you should get your report a day or two after you file your request.

How to check and correct mistakes in your credit report

It is wise to check every piece of information contained within your credit report. If you notice an anomaly or inconsistency, it is strongly advised to contact the relevant agency and have any inaccuracies corrected.

Mistakes can be made by either the credit reporting agency or a credit provider. Here are some of the things you to look for when checking your credit report:

• Outdated or inaccurate personal information
• Repeated debts
• Inaccurate debt amounts
• Incorrect credit defaults
• Outstanding debts
• Accounts created in error

If you find an unrecognisable or unknown listing on your account, contact the lender to check its legitimacy. Sometimes lenders may operate under different names than their recognisable trading names. Similarly, if you have taken up an in-store credit offer with a retailer, these can be outsourced to different credit providers that you may not have been aware of.

However, it can also be possible you may be a victim of identity theft. If you suspect this is the case, you can ask your credit reporting agency to temporarily stop access to your credit report to allow you to investigate and report any suspicious activity.

Does checking my credit rating lower my credit score?

Essentially, checking your credit score does not lower it although anytime your credit is checked (whether by you or an organisation), it is noted on your credit report. Depending on who is checking your credit and why it’s being checked, the inquiry will be noted as either a ‘soft’ or ‘hard’ inquiry. Soft inquiries, such as you checking your own report, do not affect your credit rating but hard inquiries can.

Soft inquiries include:

• Self-checking
• An employer or landlord running a credit check with your permission
• A lender running a credit check to pre-approve a loan

It’s worth noting here that a single lender running a credit check for a pre-approval won’t affect your credit score but if you apply for multiple pre-approvals or conditional loans through different lenders, this can have a negative impact. It’s strongly advised to just stick with one lender if you’re after a loan pre-approval.

In general, soft inquiries have no impact on your credit rating because you are not officially applying for credit (a pre-approval from one lender doesn’t count).

When a lender or credit provider makes a hard inquiry, this will show up on your credit report for others to see and this can lower your credit score, but generally only temporarily.

Lenders that offer mortgage pre-approval

If you’re in the market for a bank or lender that allows prospective borrowers to apply for conditional home loan approval, look no further.

You can find some of the best deals with lenders that offer pre-approval in the table below.

Important Information and Comparison Rate Warning

What can help improve your credit score?

Your credit score is crucial when applying for a home loan. A good credit score can also help you secure a more competitive home loan deal. Here are five things you can do to make sure your credit score is in the best shape it can be:

1. Ask your bank to lower your credit card limits
2. Close as many credit accounts as you can and keep just one credit card
3. Always make any credit repayments on time
4. Be prompt in settling your bills
5. Avoid applying for any other credit in the months before you apply for a home loan

_{This article was originally written by Gerv Tacadena. Photo by Alexander Suhorucov via Pexels}