Unpicking Credit Scores

Last updated: 18 October 2022

Inside our first episode of Chat Savvy we welcome the Managing Director of Credit Savvy, Paul Nicolo, to give an overview of Credit Savvy. We cover the importance of credit scores, how the concept has evolved over time and common misconceptions.

Listen until the end to grab some tips on being financially savvy during times of inflation.

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Host: Doa Demir

Producer: Stacey Chew and Marvi Pathania

Guest: Paul Nicolo

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DOA: From the Credit Savvy team, hello and welcome to Chat Savvy. We're here to help you take control of your credit life and empower you in your financial journeys, one episode at a time.

This is the first podcast of our Chat Savvy series. I’m very excited to be here. Today we have the Managing Director of Credit Savvy, Paul Nicolo and I'm your host Doa Demir, the Product Marketing Manager of Credit Savvy. Paul, could you give us an overview of what Credit Savvy does? What is the problem that Credit Savvy is trying to solve?


PAUL: So great to be here. So, Credit Savvy is the largest provider of free credit scores in Australia. We've given out over 50 million credit scores in the seven years that we've been around just after the pandemic hit. We ticked over 1,000,000 members and that's continued to go up since then.

We are not a credit bureau, so we're not the ones that collect information on your repayment history and we're not a credit provider, so not a bank or a lender. The problem space we're solving is connecting that information gap so that you know what the bureaus have about you.

When you go to a credit provider, you're in the best position and you're armed with everything that the bank’s about to see. That's the problem we try and solve. With Credit Savvy, you can do that 24/7 for free, you can access your score and your report summary. We also have tools, calculators and content to help educate Australians to get themselves in a better financial position.

We have products that'll help people fulfill their financial journeys, get that car or that home. And we also have a recently launched feature called SavvyShield, which will help protect our members against the growing risk of credit fraud.


DOA: That all sounds great. What is a credit score then? Why is it so important? What role does having a good credit score play in achieving a financial freedom?


PAUL: It's really important. So, the credit score – let’s start at the first part. It's a number. A number between 0 and 1000 or 0 and 1200, depending on what credit bureau that information is coming from. There're 3 of those in Australia, 3 major ones. We partner with Experian, so if you log into Credit Savvy, you'll see an Experian score and that is out of 1000, so it's between zero and 1000.

That score is a quick indicator of how creditworthy you are when you go to get a credit product from a bank. That comes from your - so there's a score that comes from a credit report. The credit report is a compilation of info that has been collected about you by lenders, so by bureaus from lenders. So, it has accounts that you have opened in the past two years, enquiries you've made for credit accounts in the last five years, any missed payments or defaults, as well as more recently got positive repayment behaviour, so the fact that Doa has paid off that credit card every month in the past two years. So, it is a bit complicated, 'cause you got this big credit report, you got a summary and you got a score. What we do is make it as simple as possible for people to understand that.

The second part of your question was around why is it important so. So, it's super important when you go to a bank, whether you like it or not, there is some information about you. There's very likely to be some information about you that the credit bureaus have collected. It doesn't pay to be naive about this, like being proactive around what's on your file can be really helpful. So, someone who might think, I don't need to worry about my credit score, they might be in a position in life where they need a new car or home. When they go to get finance for that, they might be surprised that that TV that they brought that they purchased on finance at 12 months ago or those three credit cards that they applied for really quickly a couple of years ago, it can actually impact your ability to get that dream purchase. So it's really important to be engaged with it, with your credit score and your credit file.


DOA: Yes, I totally agree with that. And how have credit scores evolved over time?


PAUL: They have evolved substantially, especially in the past 10 years in Australia. So, 10 years ago, about 80% of Australians had never checked their credit score. The equivalent data now is that around half of Australians have checked their score in the past two years. So the familiarity of credit scores has evolved.

At the same time, that's what goes behind the score and the credit report has evolved. There's probably 3 big developments that have occurred. One is called comprehensive credit reporting. Another is financial hardship reporting and the third one is alternate data. So comprehensive credit reporting is over the past five, six years in Australia and positive repayment behaviour helps your score. So previously if you missed a payment or applied for a bunch of credit like credit cards or loans, that would be seen as negative behaviour. It was really the only thing being reported to credit bureaus. Now, if you've actually paid your obligations up on time, that's called positive behaviour. That's what has evolved as a part of comprehensive credit reporting.

More recently, I'm talking July this year, financial hardship reporting has evolved. So people who have had to call their bank and adjust their repayment terms, the nuances of that are starting to go on people's credit files and that may sound scary, but it's actually a really good thing because instead of everything being considered a miss payment, credit reports will now be able to have the ability to see, Doa actually called her bank and when there was potentially trouble, you've been able to come to an agreement and stick to it.

The third one is around alternate data. So traditional information like your credit card or personal loan repayments, most people would associate that with what goes on your credit file. We're seeing more instances of buy now, pay, later and even non-bank products appearing on credit files. You look at countries overseas and if you consider what's happening in the US and the UK in particular, we expect more of that to be appearing on people credit files. What does that mean for the average Australian? Their credit score and their credit report are gonna be even more comprehensive and even more important over time.


DOA: Definitely, so, what are some common misconceptions about credit scores that you hear?


PAUL: So the most common misconception about credit scores in Australia is that they don't matter, and that couldn't be further from the truth. Whether you're currently engaging credit products, the reality is at some point in your life, there's going to need to be a - there will be a need that requires some sort of financing, whether it's a home purchase or car purchase, the earlier you engage with your credit score and see what's on your report and how to improve it, the better it impacts all of us.

So some of the more nuanced ones that we get, firstly, there's a misconception that checking your credit score will negatively impact your credit score. So that's the myth. The fact is that checking your score will not impact your score at all. In fact, we encourage our members to check it frequently so they can be more in touch with changes that have occurred, and you might even be able to spot some errors on your credit file that have popped up.

Another misconception or myth is that you need a high income in order to have a high credit score. The fact is that incomes are separate from your payment history, and it's that last part that impacts your credit score. Now obviously your income and your expenses situation will determine whether you get a particular credit product from a bank. That is separate, however, from the credit score.


DOA: Thank you for addressing these misconceptions. Could you tell me what is the impact of Credit Savvy in Australia?


PAUL: So, Credit Savvy was founded as part of Aussie Home Loans back in our former lives and as a result there's or it's in our DNA to be transparent and open and try to get the best for our members. We have well over a million members, we are the largest in Australia on that account and we've always been about making credit scores simple and easy to understand and allowing people to empower themselves for their financial lives.

A good example in addition to sort of just the basic, you know, credit score information in the summary, and we offer our members unique ways to protect their credit score. So I want to touch on a new product that we recently launched called SavvyShield. So, our Head of Product, a friend of hers, had a friend, that lost their driver’s license or that their handbag was stolen and that person had multiple credit card and loan accounts made in their name fraudulently. This person suffered for a very long time. Her credit score was impacted. It took years to call banks and credit bureaus to fix it all up, so inspired by this really, really sad situation, and having seen similar trends occur amongst our members, we decided to launch a product with SavvyShield.

SavvyShield is only available in the Credit Savvy app, this is a feature that allows you to put a ban on your credit file with the tap of a few buttons, and this is to prevent the growing problem of credit fraud. So, one in four Australians have suffered identity theft. One of the most common use cases of, or sadly, the most one of the most common uses of stolen identity is to take out credit applications. So this is another way that we're helping Australians compile themselves and just check some information, but actually proactively take steps to protect their financial future.


DOA: That sounds fascinating. Let's wrap up with some tips from you, Paul. We're seeing high inflation rates and interest rates are rising. Do you have any tips for Australians who want to improve their credit scores and take control of their finances?


PAUL: Yeah, it's an interesting time, Doa, at the moment. Look, ignorance is certainly not bliss when it comes to finances, so delaying or hoping that things will get better - it often ends in a pretty bad situation, if that's the case.

A really common principle in this doesn't impact credit scores is track what you spend, like budget appropriately so you're not spending beyond your means. If you do that, you get that's 80 to 90% of it. And as far as your credit positions concern, have a look at all the accounts you have. It might make sense to consolidate a bunch of debts if you have multiple credit cards or personal loans, it might be difficult to manage. It might make sense to consolidate some of them so it's easier for you to track and you might get a better deal for yourself.

Another one which really surprises me is how surprising how few people do this. Call your bank and get a better deal. It's not like the 80s where you walk into a bank branch and there's some really senior person that says yes or no and that dictates all. Like the power - the data is in the consumers' hands now. We can see what we can get. Banks want your business. Give them a call and see where you can get. The worst thing that can happen is you just wasted a phone call in a few minutes.

Other than that, look, checking your credit score and what's on your file is really important because even if you're not looking to get a new credit product you might spot something on your account - you might be like that that that person I mentioned before, they had their handbags stolen, you could be the first person to see fraud on your file. You could see an error on that. Those things don't go away quickly so by keeping in touch with what's on your credit file, by checking your credit score, that's one really easy, free, simple step to keeping control of your finances.


DOA: Absolutely. Thank you so much for your time, Paul. It was great to have you here today. Thank you for listening to the episode of Chat Savvy. We'll be back at the end of each month, so stay tuned for the upcoming episodes.

This podcast is produced by Marvi Pathania and I'm Doa Demir. For more information, take a look at our show notes. Bye for now.

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