In a period marked by rising interest rates and economic challenges, Australians have showcased resilience in managing their finances by increasing their credit scores. The Equifax Australian Credit Scorecard 2023 provides an insightful glimpse into these trends, reflecting how consumer behavior has adapted in response to the economic climate.
Credit Scores Rise Amidst Economic Turbulence
Despite the economic headwinds, Australians have managed to improve their overall credit health. The national average credit score saw a rise from 846 in 2022 to 855 in 2023. This increase moves the average Australian from the ‘very good’ to ‘excellent’ category, based on Equifax’s grading system. The scoring bands are as follows:
- Excellent: 853 – 1,200
- Very Good: 735 – 852
- Good: 661 – 734
- Average: 460 – 660
- Below Average: 0 –459
The Role of COVID Savings
According to Carrie Cheung, Head of Insights at Equifax, the ABS household saving ratio peaked at 23.6% in June 2020. The gradual decline in savings since then has accelerated in 2023, reaching a low of 3.2%. These savings have been a crucial buffer against the rising cost of living and high cash rates, positively impacting credit scores.
Challenges on the Horizon
However, the cushion provided by savings is diminishing. An increase in missed credit repayments, including mortgages, is becoming evident across all age groups. This trend is indicative of growing financial strain, particularly among younger consumers.
Refinancing and Financial Strategies
In the face of economic challenges, many Australians are exploring refinancing options. Equifax data indicates a significant uptick in refinancing activities, with 38% of mortgage enquiries in August 2023 coming from consumers seeking to refinance – a notable increase from 26% in 2019. Borrowers looking to refinance generally have higher credit scores than those applying for new mortgages.
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Buy Now, Pay Later (BNPL) Applications
While BNPL applications have risen, the average credit score of applicants has declined. This trend is especially pronounced among the 18-30 age group, where the average score has dropped substantially.
Consumer Liability Payments on the Rise
There has been a marked increase in consumer liability payments, with mortgage, rent, and loan payments seeing significant hikes. In contrast, credit card payments have only seen a slight increase, suggesting a shift in spending priorities.
Maintaining Credit Health
Cheung emphasizes the importance of proactive financial management to maintain credit health. Regularly checking credit scores, closing unnecessary accounts, and reaching out to lenders in case of financial difficulties are recommended steps. Paying bills on time and limiting short-term loan applications also positively impact credit scores.
About the Equifax Credit Scorecard 2023
The Equifax Credit Scorecard 2023 categorizes scores into five bands, representing the risk level associated with each score. Understanding these bands can help consumers gauge their credit standing and take appropriate measures to improve or maintain their scores.
While Australians have shown resilience in maintaining their credit scores, the ongoing economic challenges necessitate continued vigilance and proactive financial planning. Understanding the dynamics of credit scores and the impact of economic factors is crucial for maintaining financial health in these turbulent times.
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