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How Do Credit Scores Work?

There’s a big chance you’ve heard about credit scores, but do you know how they work? 

It’s important to understand how a credit score works as it can directly affect your ability to borrow money or get credit at financial institutions. Credit providers will use your credit score to calculate the risk of lending you money or giving you credit. 

Here at Fix My Credit we have an expert financial team with more than seven years experience helping clients with debt. As leaders in the industry, we know all about credit scores and why they are so important. 

Here are a few quick facts to help you understand exactly how credit scores work. 

What is a credit score? 

In Australia, a credit score is also known as a credit rating and we liken it to a school report card. Generally, it’s a rating between zero and 1,000 (or 1,200) that indicates to financial institutions your worthiness to borrow money or receive credit. When you have a higher credit score it shows financial institutions that you have a good history making payments on time to pay off your debts. 

credit scores

Who generates your credit score?

Your credit score is generated by a Credit Reporting Body (CRB). In Australia there are three CRBs that collect, store, use and disclose your credit information. The three CRBs in Australia are Equifax, Illion and Experian. 

Credit providers and other organisations send credit reports to these CRBs to generate your credit score. It’s important to remember that your credit score can differ depending on the agency, as they all collect their own set of credit information. 

How is a credit score calculated? 

Your credit score takes into consideration the frequency of your applications for credit and your borrowing and repayment history. It is calculated using an algorithm that looks at your credit history, credit profile and credit applications. 

With credit scores ranging from zero to 1,200 (depending on the agency), the general rule is the higher the credit score, the better your credit rating and the more worthy you are of borrowing from financial institutions.

Issues that influence your credit score include bankruptcies, court judgements, defaults and credit infringements. Your credit score can also be influenced by the types of credit providers you submit applications to, as well as your repayment history and if you have paid your debts on time.

Two types of credit reporting

There are two types of credit reporting, Comprehensive Credit Reporting (CCR) and negative credit reporting. When calculating credit scores, negative credit reporting is always used, however CCR is also used to provide a more thorough credit score. 

CCR takes into account positive actions including your history of making payments on time. Lenders share positive data to give a more accurate indication of a person’s creditworthiness. 

Negative credit reporting may include late payments, missed repayments, unpaid bills, loan or credit card rejections, bankruptcy, court judgements and applying for many loans or credit cards in a short amount of time. 

Distinguishing between good and bad credit scores


A good credit score is generally 800 and 1,000 (1,200) and an average credit score is generally between 500 and 700. Having a good credit score increases your chances of accessing loans and credit as well as more competitive loan rates. 


Fair credit scores generally range between 300 and 500 with low credit scores from zero to 300. When you have a bad credit score it indicates to lenders that you may have trouble paying off the loan/credit on time and may have limited (to no) borrowing capacity with much higher interest rates as you are considered more of a risk. 

Can you improve your credit score? 

To improve your credit score you need to decrease your bills and debt and ensure you pay expenses on time. We also recommend limiting the amount of applications for credit you submit. You can also consult a professional credit repair company. 

At Fix My Credit we can help you with: 

At Fix My Credit we can provide a full credit report so you know where you stand before applying for a loan or credit. We have a proven track record repairing credit. Want to know more? Complete our quick contact form and we’ll be in touch with you as soon as possible!

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