Misunderstandings about credit scores are widespread in Australia, leading many people to make decisions based on inaccurate information. Clearing up these myths is important for anyone wanting to take control of their financial health and make informed choices about credit.
Key Takeaways
- Your credit score is not determined by your income or being debt-free.
- Checking your own credit score does not lower it.
- You have more than one credit score, depending on the agency.
- Not all debts or payments are included in your credit report.
- Credit scores and credit reports are not the same thing.
Common Myths About Credit Scores
Myth 1: Not Having Any Debt Means You Have a Good Credit Score
Many believe that avoiding debt is the key to a high credit score. In reality, having no credit history can make it difficult for lenders to assess your reliability. A credit score is built on your history of managing credit—responsible use of a credit card, a phone plan, or utility bills can help establish a positive record. Simply having no debt does not guarantee a strong score.
Myth 2: Every Australian Has Only One Credit Score
It’s common to think there’s a single, universal credit score for each person. In fact, Australia has several credit reporting agencies, including Equifax, Experian, and Illion. Each agency collects and analyses data differently, so your score can vary between them. Lenders may use any of these scores when assessing your application.
Myth 3: Checking Your Credit Score Will Lower It
Some worry that reviewing their own credit score will harm it. This is not true. Checking your own score is a “soft enquiry” and has no impact on your rating. Only “hard enquiries,” such as applying for a loan or credit card, can affect your score.
Myth 4: A Pay-Rise or Higher Income Improves Your Credit Score
Your income is not included in your credit report and does not directly influence your score. While a higher income may help you qualify for larger loans, your score is based on your borrowing and repayment behaviour, not your salary.
Myth 5: All Credit Scores Are the Same
Different agencies use their own scoring systems and may have access to different information about your credit history. This means your score can vary significantly between agencies. It’s important to know which score a lender will use when you apply for credit.
Myth 6: I Don’t Need a Credit Score Until I Apply for Credit
Building a credit history before you need a loan or credit card puts you in a better position to access favourable rates and terms. Waiting until you need credit can leave you with a thin file, making approval harder and potentially more expensive.
Myth 7: Using a Debit Card Helps Build Credit
Debit card transactions are not reported to credit agencies and have no effect on your credit score. Only credit products, such as loans, credit cards, and some utility accounts, are included in your credit history.
Myth 8: All I Need Is a Credit Report
A credit report contains detailed information about your credit history, but it does not always include your credit score. The score is a separate calculation based on the data in your report. Both are important: the report shows your financial behaviour, while the score gives a quick summary of your risk profile.
Myth 9: Applying for Multiple Loans in a Short Time Doesn’t Matter
Every time you apply for credit, it’s recorded on your file as a hard enquiry. Multiple applications in a short period can signal to lenders that you may be experiencing financial difficulty, which can lower your score. It’s wise to space out applications and only apply when necessary.
Myth 10: Only Loan and Credit Card Activity Counts
Some believe only traditional loans or credit cards are included in credit reports. In reality, certain utility bills, phone plans, and even some “buy now, pay later” services can also be reported and affect your score. Not all bills are included, but missing payments on those that are can have a negative impact.
Myth 11: Being Debt-Free Guarantees a High Score
While not having debt is positive, lenders want to see evidence of responsible credit use. A blank credit report does not demonstrate your ability to manage repayments, which is what lenders are looking for.
Myth 12: Personal Details Like Your Address or Job Affect Your Score
Credit scores are calculated based on your credit history, not personal factors like your address, job title, or marital status. Only your financial behaviour and how you manage credit products are considered.
Myth 13: Rental Payments Are Always Included
Most rental payments are not recorded on your credit report, and landlords do not routinely check your credit file unless you’re applying for a rental through an agency that performs credit checks.
Related Topics for Further Reading
- How to Check Your Credit Score in Australia
- What is a Credit Report and Why Does it Matter?
- How to Improve Your Credit Score in Australia
These articles help you build a clear understanding of credit and make confident financial choices.
Conclusion
Credit scores are often misunderstood, leading to myths that can hold you back from making the best financial decisions. By knowing the facts, you can manage your credit profile more effectively and avoid common pitfalls. If you want clear guidance or need help with your credit report, Easy Credit Repair is here to support you. Check out our services or get a free quote.
Disclaimer: All information in this article is based on research and our views only. If you have questions about your credit score or credit report, please reach out to us.
