Credit scores unexpectedly improved in 2022: Experian

Credit bureau agency Experian has found that credit scores fared “surprisingly well” last calendar year, even as inflation levels hit 30-year highs and the official cash rate rose at its fastest pace on record.

By analysing the average credit score data between January and October 2022 for its annual Risk Radar report, Experian found that Australia’s average credit scores increased by 0.4 per cent.

Younger Australians saw a particular improvement, with those aged between 18–24 and those between 25–34 years old seeing average credit scores improve by about 0.7 per cent. 

However, older Australians (aged over 65) did not improve their average credit scores across 2022, the Experian data showed.

Speaking of the unexpected rise in credit scores, Experian’s director of client advisory, Charlotte Rankin, said: “Credit scores fared surprisingly well in 2022 as Australians faced record-high inflation and increasing interest rates and cost of living. 

“In theory, this environment may increase the rate of missed payments and defaults, negatively impacting credit scores. [But] the fact that average credit scores were maintained, and for certain demographics slightly increased, indicates that Australians wisely adapted their financial behaviours to manage the challenging economic conditions.”

Ms Rankin suggested that this could have been supported by the fact that many Australians had accumulated large savings reserves through the lockdown periods of 2020–21, which they were able to draw upon last year and stave off hardship.

For example, data from the Commonwealth Bank of Australia revealed that the median savings balance was 46 per cent higher than in 2020. 

However, many of these buffers have now been consumed, with the latest Australian Bureau of Statistics (ABS) showing the household savings ratio for September quarter 2022 showed a decrease to 6.9 per cent from 8.3 per cent.

While the 2022 figures were positive, Ms Rankin warned that “we’re not out of the woods yet”.

She explained: “[T]hese economic challenges show no sign of slowing in 2023. The good news is that hardship regulation introduced in July 2022 means that a framework is in place to manage the increased rates of hardship expected for the year ahead, while also safeguarding against any financial hardship arrangements impacting credit scores.”

As the economic environment changes, more lenders have been launching credit score products for their customers. Digital lender MONEYME (which now owns SocietyOne) launched a free credit score offering through its app this week, which aims to help customers keep track of what’s on their credit file and how their score has changed over time. It also allows them to understand their approval chances on MONEYME’s credit products.

The MONEYME Credit Score product leverages credit file data from Experian and was built on MONEYME’s technology platform Horizon after the lender found that 94 per cent of beta product customers found it helpful to know their score and understand how to improve it while 40 per cent found it “extremely” helpful.

The vast majority (93 per cent) said they checked their score at least every few months and did so because they wanted to apply for a loan (31 per cent), were worried about their debt (24 per cent), or wanted to know how they compared to others (17 per cent).

[Related: Savings buffers ‘exhausted’, Equifax warns]