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

If you’re a young Australian looking to take out a loan or credit card, you may be struggling with the fact that you haven’t built up a credit history.

This is not uncommon, as it can take some time to grow up your credit score. But it can be frustrating for Aussies who feel like they need credit to build credit.

So, what happens if you don’t have a credit score? And how can you build up your credit history without risking falling into debt? Here are some helpful tips to guide you through developing your credit score.

What a credit score does

When you want to borrow money from a bank in the form of a loan or credit card, the bank will need some sense that you can keep on top of your bills, pay back this money and not fall into debt. This is where a credit score comes in.

Your credit score indicates your trustworthiness as a borrower. It is based on your credit history, which is an outline of:

• Money you’ve borrowed;
• Any credit applications you’ve made; and
• Paying your bills on time. 

A high score shows credit providers that you are a reliable borrower and should be able to pay back a loan in a timely way. Not only does this mean you are more likely to be approved for financial products, some providers reserve their most competitive interest rates for Australians with excellent credit scores. For example, someone with an ‘excellent’ credit score may receive a lower home loan interest rate than someone with only a ‘good’ credit score.

How to check your credit history and credit score

Your credit history is stored on your credit file and can be viewed through one of the Australian credit reporting bureaus. These include Equifax, Experian and Illion. Credit reporting bureaus allow Australians one free copy of their credit report each year, so if you’ve never looked your credit history, now is the time.

 Here is Equifax’s credit score scale:

• 833 - 1200: Excellent

You’re a reliable borrower and among the top 20 percent of the credit-active population of Australia. Your odds of keeping a clean file are five times better than the average Equifax credit-active population.

• 726 - 832: Very good

Although you may have had your share of financial misses or have not had time to build a credit history, you still have a decent score. Your chances of keeping a clean credit report are two times better than the average Equifax credit-active population.

• 622 - 725: Good

Your odds of keeping a clean credit report are better than the average Equifax credit-active population. It’s less likely you will face an adverse event in the next 12 months.

• 510 - 621: Average

It’s likely that you might experience an unfavourable event such as a default, bankruptcy or court judgment in the next 12 months.

• 0 -509: Below average

It's more likely that you will experience an unfavourable event such as a default, bankruptcy or court judgment in the next 12 months.

There are some financial websites that do provide you with just your credit score. RateCity can help you to get a free copy of your credit score. All you’ll need is to provide some basic personal identification details, and your score will be sent to you.

How to grow your credit history from nothing

Whether you’re trying to get your first credit card, or looking to take out a car loan, there are a few ways you can grow your credit history and build up a credit score without borrowing credit.

• Utilities bills. If you’ve moved out of home, or if your parents are keen to help you, try and have your name put on a utilities bill, such as gas or electricity. This is a simple way you can show banks you’re reliable with paying bills on time and begin to grow your credit score.

• Phone plan. Perhaps you’re still on a prepaid phone plan or maybe you’re on your parent’s phone plan. One of the easiest ways you can start your credit history is to begin an independent phone plan under your own name. Just keep in mind that this is a financial responsibility, and not paying your phone bill on time can hurt your credit score.

If you are comfortable borrowing credit, you may want to consider taking out a low-rate, low-fee credit card. These typically come with easier credit card eligibility criteria to meet, as well as lower rates, fees and credit limits to prevent you growing debt. If you can pay your credit card balance in full each statement period, this is one way you can seriously boost your credit history.

Just ensure you do your research around the eligibility criteria of any financial product you’re considering applying to. Read the product disclosure statement carefully to see any minimum income, employment and credit score requirements. This is crucial for every Australian to do, as applying for any financial product and being rejected will negatively impact your credit score.

Comprehensive Credit Reporting and positive information

Previously, a credit report will only show negative information, as well as basic facts around utilities or money you’ve borrowed. But what about your positive financial information? Australian banks, including the big four, are making the move to Comprehensive Credit Reporting (CCR) to include just this.   

CCR means that when credit providers supply credit bureaus with information about how their customers are managing loans, they will now supply both ‘positive’ and ‘negative’ information. Those with poor credit scores may be able to bounce back quicker thanks to CCR. Further, for those with very little credit history, it may also help you.

This positive information may include:

• Making all your bill repayments on time for the past year.
• More information added to files of those with little credit history, such as the type of credit account opened, the date it was opened, the name of the credit provider and current limit on the credit account.
• Repeated behaviour taken into consideration more heavily than one-off missed payments.

Put simply, comprehensive credit reporting will reward Australians who always pay their bills on time and pay off debts in full, as this showcases a strong level of financial responsibility to credit providers.

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