Your credit rating vs your credit file
It's the almighty show down between credit files and credit ratings: what do they mean? And which is relevant to you? Let me explain.
The credit system in Australia is often misunderstood by its millions of credit consumers around the country. The cause of this confusion is due to two very simple terms: credit rating and credit file.
The term 'credit rating' is used In countries such as America, where the credit industry uses a rating system that indicates to credit providers, the potential risk involved in lending to a person.
Now we'll get a tad academic for just a second here.
The U.S credit rating system is worked out based on a formula called the FICO formula (named after the Fair Isaac Credit Organization - one of the first U.S credit companies to use the credit rating system in the 1950's) which gives a number between 300 and 900.
A person with a credit rating of 300 is considered a very risky client by credit providers, while 900 suggests a very low risk. While a person may not have a credit rating of, say 350, their actual credit rating of 500 will be enough for a credit provider to turn down an application.
If they do decide to accept an application they may provide the person with the credit, but on difficult terms and charge a very high interest rate. In contrast, a credit rating of 650 or higher will be enough to be accepted for almost any new line of credit.
In Australia things are a little different. There is no real 'rating' on a person's credit file like there is in America. What goes on your file is a record of your credit history that is updated every time you have new credit activity.
The only problem with this is that there are no across-the-board rules as to how a file should be interpreted. So when a file is viewed by company (say a bank), whatever information the file shows is completely open to the interpretation of the person viewing it.
So when you obtain a copy of your credit file in Australia, you will not get a 'rating' of your credit activity. You will, however, see full details of your recorded credit history.
So now you've got the inside word, see what you can do to keep your credit file as clean as possible, as this will make thing a whole lot easier when the time comes to apply for credit in the future!
