In an nutshell
It’s like your financial fingerprint – a number which sums up how good (or bad) you are at paying back a loan, and is on file for all lenders to look up to see how risky you are as a customer.
In more detail
Don’t be alarmed if you don’t know what a credit score even is, let alone what yours is. Only 26% of Australians have any idea what their magic number looks like. You should absolutely know what it is though… but we won’t go into that now (we went into it over here though).
A credit score is a number that’s accessible to anyone in the business of lending money, which tells them how risky you might be to lend money to – ie. how likely you are to pay back a loan based on your financial history. The higher your score, the better you look in the eyes of a lender – and this often will end up getting you a better interest rate. The worse your score is, the higher the rate you’ll end up paying (if they decide to lend to you at all). They have to charge more to balance out the risk, so they can still make money even when some people don’t pay them back.
Your credit score is (*well, it should be… ) assessed any time you’re applying for credit (ie. to borrow some money) – this includes a home loan, a car loan, a credit card, a personal loan, even when you take up one of those “10,000 months interest free” offers on a new TV or mattress.
Credit scores can be as mystical as a bloody unicorn farm, and I guarantee whatever you’ve heard from your uncle about them is probably not true. So read up about things you need to know, like how to improve your credit score, why knowing your score is so important, and how to check your score.
*We should be adding in the buy-now-pay-later providers, but not all of them do even check your credit score ~ cough cough afterpay ~ which might sound great on the surface but can be dangerous…