Sydney, Australia – November 2023 – New data from Equifax, the global data, analytics and technology company, reveals credit scores have been sheltered from a year of economic headwinds as Australians turn to savings accounts bolstered by the COVID period to help make ends meet. 

Released today, the Equifax Australian Credit Scorecard 2023 saw the national average credit score remain “excellent”, slightly lifting from last year’s result of 846 to 855. The Scorecard offers insights into the credit habits and scores of Australian consumers, based on an analysis of more than two million Equifax credit scores. 

Carrie Cheung, Head of Insights at Equifax, said, “We saw the ABS household saving ratio peak during COVID, at 23.6% in June 2020. Since then, savings have been in consistent decline - a  trend that has accelerated in 2023, reaching a 3.2% ratio. 

“Using savings to manage the higher cash rates and increased cost of living has helped cushion many Australian consumers against recent economic turbulence, and has had a beneficial effect on their credit scores. But this cushion is shrinking rapidly and has already been exhausted for some.”

A watch-out trend is the growing number of people falling behind on their credit repayments, including mortgages. Missed repayments are trending up among all age groups, and consumers who are behind on credit repayments are more likely to have a credit score below the national average. 

“A lower credit score doesn’t necessarily mean there is reason to be concerned. However, as we look at the macroeconomic context, we start to see pockets of strained consumers, especially among the younger population. 

“If consumers are struggling to make ends meet, they should speak to their lender and come to an arrangement before they miss repayments. This approach is better for their credit scores in the long run, and will ensure that any financial stress consumers are going through now won’t impact them down the road, when they might need to apply for credit again for another big life moment,” said Cheung.

Refinancing and financial strategies

In the face of economic headwinds, Australians have been searching for better deals to help combat the impact of rising interest rates and household budget pressures. According to Equifax data, refinancing activity has increased significantly; 38% of mortgage enquiries in August were from consumers looking to refinance, compared to 26% of all enquiries in 2019.  

Borrowers who applied for refinancing have a higher average score than those who enquired about new mortgage applications (949 and 827, respectively). The average score for refinance applications has also increased compared to pre-pandemic levels, with the younger age band (18-30 years old) seeing the biggest improvement, from 879 in 2019 to 931 in 2023. The 31-40 bracket, which makes up the highest proportion of refinance applications, experienced an increase in average scores from 906 in 2019 to 951 in 2023.

“Banks have been working closely with customers to help them manage their repayments while also implementing tighter serviceability criteria when granting loans, to ensure consumers will be able to make ends meet in the current economic scenario,” Cheung commented.

Although the proportion of Buy Now, Pay Later (BNPL) applications increased by almost a full percentage point from 2021 to 2023, the average score of the consumers applying for BNPL fell from 694 in 2021 to 582 in 2023. Most BNPL applications were made by consumers in the 18-30 age group in the past year, with an average score of 541 – a decrease from 632 in 2021. 

Equifax also observed that as economic conditions tightened, the proportion of consumer liability payments (mortgage, rent, credit card payment and loans) has increased dramatically.

“This increase in consumer spending on liabilities is likely connected to rising interest rates. The repayments have grown tangibly, and consumers, as a result, have had to shift their spending habits to prioritise paying back debts. 

“Mortgage (+ 21.41%), rent (+14.87%) and loan (+22.63%) payments increased significantly in Q2 of this year, when compared to the start of 2022. However, payments on credit cards only saw a very small uplift (+3.54%), indicating that some Australians have started cutting back on unsecured credit and prioritising secured credit debt instead,” Cheung said. 

“We know this has been a tough year for Australians, but they have persevered. Now is the time for consumers to take action and ensure they are looking after the long-term health of their credit scores. Small things like paying bills on time and limiting the amount of short-term loans are all things that have a positive impact,” Cheung added.

Other ways to build and protect your credit score include:

  • Check your credit score regularly 
  • Closing unnecessary accounts 
  • Reaching out to your lender if you’re worried about falling behind on payments
  • Continue to pay bills, credit cards, loans and rent on time and build a rainy-day fund in case of unexpected events
  • Be aware of the number of credit applications you make

An Equifax credit score will fall into one of five bands, each representing a consumer’s level of risk according to their Equifax score. The score bands are:

  • Excellent (853 – 1,200)
  • Very good (735 – 852)
  • Good (661 – 734)
  • Average (460 – 660)
  • Below Average (0 –459)