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Your credit score is used to indicate to lenders whether you are a reliable and trustworthy borrower. If you don’t have a credit score, being approved for a loan or credit product can be more difficult.

Below, we discuss whether you can get a personal loan without a credit score, what a credit score is, and how to get one.

What is a credit score?

A credit score is determined by a credit reporting bureau to indicate your reliability as a borrower. Your credit score will be a number from zero to 1,000 or 1,200 depending on the bureau.

There are three main credit bureaus in Australia: Equifax, Experian, and illion. Your credit score can vary between each of these companies as they use a different criteria to calculate it. Your credit score determines whether you have ‘good’ credit or ‘bad’ credit and is based on a five-point scale: excellent, very good, good, average, and below average.

What is a good credit score?

A good credit score demonstrates to lenders that you are a reliable and trustworthy borrower. Having good credit broadens your options in terms of your choice of lender, interest rate offered, and the amount borrowed.

A ‘good’ credit score is anywhere from good to excellent on the score range and can vary between the three agencies. This information is outlined in the table below:

Equifax Experian Illion
Good 666 – 755 625 – 699 500 – 699
Very Good 756 – 840 700 – 799 700 – 799
Excellent 841 – 1,200 800 – 1,000 800 – 1,000

What is a bad credit score?

A bad credit score indicates to lenders that you are a high risk borrower. Missed repayments, defaults, or a serious credit infringement can lead to a bad credit score. In addition, entering formal debt agreements or declaring bankruptcy can also negatively impact your credit score.

Having bad credit can limit your ability to find approval for a loan or credit product. It can also mean that any financing you are approved for can come with a higher interest rate.

A ‘bad’ credit score can be considered to be average or below average on the five-point scale. What is considered to be a bad credit score is outlined below:

Equifax Experian Illion
Below Average 0 – 505 0 – 549 0 – 299
Average 506 – 665 550 – 624 300 – 499

How do you get a credit score?

Your credit score is indicative of your ability to manage repayments responsibly and on time. It is calculated based on the information in your credit report. This information includes your  repayment history, total amount of debt owed, length of credit history, types of credit and new credit. There are other ways that you can get a credit score including:

  • Having a postpaid phone plan.
  • Having an account with a utility provider under your name (e.g. water, gas, electricity).
  • Having or recently had a loan, credit card, or other credit product.

You may not have a credit score if you’ve never held any of the aforementioned products, haven’t applied for credit in a while (your credit report only details information from five to seven years ago), or you recently moved from overseas.

What happens if you don’t have a credit score?

When you apply for a personal loan, credit card, or any other form of credit, the lender will typically conduct a credit check as a part of their duty to comply with responsible lending guidelines. If you don’t have a credit history, it can be difficult for the lender to get an idea of how risky you are as a borrower.

While a credit score is useful, there are other ways to show that you are a low risk borrower by demonstrating the following:

  • You have a full-time, secure job with a consistent income.
  • You have a stable living arrangement that is comfortably affordable for you.
  • Your income is sufficient to cover your loan repayments, minimising the possibility of falling into financial hardship when repaying your loan.
  • Don’t have a history of dishonour fees, late payment of bills, or failed payments on your debit card.
  • A consistent, disciplined, and sufficient saving habits.

How can you build up your credit history?

You receive a default score when you receive a new credit report (which is usually the average score for the provider), which is impacted by new credit inquiries. There are ways you can start a credit history without taking out a loan or credit product and, as a result, avoid high interest fees or unnecessary debt. To start with, you can consider:

  • Putting any utility accounts you are responsible for in your name (electricity, water, gas bills). This can be useful to demonstrate your reliability in making payments.
  • Getting a postpaid phone plan to demonstrate your ability to pay bills.

While these steps can generate a credit history, keep in mind that any defaults or missed repayments can negatively impact your credit file. This is why it’s important that you prioritise making your repayments on time. To help with this, you may want to consider setting up an automatic direct debit.

You can also consider applying for a form of credit, such as a credit card, to generate a credit score. Alternatively, you can consider applying for a personal loan from an online lender like Jacaranda Finance that considers additional factors than just your credit score. Again, it is important to manage these products responsibly, as missing repayments, defaulting, or having serious credit infringements can negatively impact your score.

Written by: Jacaranda team