Dismissing Misconceptions About Credit Scoring

excellent credit score

Credit scoring is not a new concept in Australia, particularly in Victoria.  Anyone planning to buy a property around West Melbourne real estate knows by instinct that their credit score needs to be as high as possible to qualify for a mortgage and negotiate for a low interest rate.

Common sense tells you that it is imperative to check your credit file before shopping around for home loans. This way, you can be in your most creditworthy self by the time you talk to your first prospective lender.

Due to recent regulatory changes, though, you need to rethink credit scoring if you are to improve your credentials ahead of your mortgage application. To help bring you up to speed on the latest credit scoring system in the country, let us debunk some of the misconceptions:

Every Australia Has Only One Credit Score

A credit score is a three-digit number calculated using an algorithm-based application by a credit bureau. Australia has more than one credit bureau, and therefore you have more than one credit score out there.

Why does knowing you have multiple credit scores matter? Credit bureaus might think about similar criteria when doing their calculations, but each can weigh factors differently. In other words, the credit band you fall under depends on the credit bureau your mortgage lender is using. Having a credit score of 622 is enough to be considered “good” by Equifax, but that number is just “fair or average” if the eyes of Experian.

When doing your research, it pays to ask your prospective bank whose credit score calculation they are using. Otherwise, you might improve the wrong credit score and miss out on the best deals.

Credit Scores Include Just Negative Information

Before, credit reports generally feature just derogatory marks, such as missed payments and bankruptcies. Since March 2014, though, positive items, like punctual payments, have begun carrying more weight in credit scoring.

This tectonic change, called Comprehensive Credit Reporting (CCR), is designed to help mortgage lenders a broader view of the finances of consumers before making credit decisions.

Now that most, if not all, of your good deeds will count, you should be more conscious of how you manage your credit cards and other financial obligations.

All Banks in Australia Are Required to Report Credit Data

macro shot with old credit card

No, the government requires only the big four banks to submit the credit information of their customers to credit bureaus. If you have a credit account with a financial institution outside CommBank, ANZ, Westpac and NAB, your data in it might not appear on your credit file.

Nevertheless, smaller banks in Australia are incentivized to share credit information on their own to stay competitive. If your bank does not report to credit bureaus, you might want to compel them to do so to supply your credit file with as many positive pieces of data as possible.

The credit scoring system in Australia is far from perfect. But the recent legislation opens a world of opportunity for you to improve your credit scores more quickly.