How Credit Scores Actually Work

Credit scores are important; they affect the kind of loans we can access in the future. But how does a credit score work? How is credit rating determined? How is credit score calculated? And can you change it? It’s time to take a deeper look at this important score that affects so much of our lives.

So, what is a credit score?

Your credit score or credit rating is a number that represents how financially trustworthy you are or how reliable you are as a borrower. There are several bands that your score can fall into.

  • “Excellent” includes all scores that range between 833 to 1,200.
  • “Very good” includes scores between 726 and 832.
  • “Good” includes scores from 622 to 725.
  • “Average” includes scores between 510 and 621.
  • Any score below 510 is considered below average or even poor. But remember that a bad credit score doesn’t necessarily prevent you from getting a loan!

It is possible to get a loan if you have poor credit, but it’s a good idea to try to improve your credit first if possible, as this can mean better interest rates.

How is credit rating determined?

There are several things that factor into your credit score, but most of it comes down to your borrowing history. Any loan you’ve ever taken out will contribute to your credit score, as will how steadily you repay your loan(s). For example, even a HECS-HELP loan that you repay automatically will help you build a healthy credit score. So will paying all your bills on time.

There are a lot of ways to improve your credit score if it’s not at the level you want it to be at; a bad credit score isn’t the end of the line.

How to find out your credit score

Improving your score is one thing, but you need to know what your score is if you want to watch it improve. The Australian government website Moneysmart has some great resources and suggestions if you need to figure out what your credit score is. There are some myths around credit scores that suggest that checking your credit score will negatively affect it, but we busted that myth (and several others about credit scores) already.

What’s the purpose of credit scores?

Now that you’re no longer wondering how a credit rating works, you might still be wondering why you even need a credit score. For lenders, each time they offer a loan they are engaging in a certain amount of risk. There’s always the possibility that a borrower could default on a loan.

Higher credit scores let lenders know that a borrower is a lower risk. This can affect the interest rates you see as a borrower. If a lender notices a low credit score and is worried about losing money if they lend to that person, they may charge more interest to mitigate losses. A lower risk borrower with a higher credit score might see lower interest rates.

Disclaimer: Please be aware that Cigno Loans’ articles do not replace advice from an accountant or financial advisor. All information provided is intended to be used as a guide only, as it does not take into account your personal financial situation or needs. If you require assistance, it is recommended that you consult a licensed financial or tax advisor.


Ordered by the Federal Court of Australia

The Federal Court of Australia has found that Cigno Australia Pty Ltd (Cigno Australia) and BSF Solutions Pty Ltd (BSF Solutions) have breached the law by engaging in unlicensed credit activity and charging prohibited fees.

In the period from July 2022 to 3 October 2023, over 100,000 consumers have been lent a total of $34 million, and charged fees of over $70 million, under the ‘No Upfront Charge Loan Model’ operated by BSF Solutions and Cigno Australia. At no time has either BSF Solutions or Cigno Australia held an Australian Credit Licence.

The Court also found that Mark Swanepoel (director of Cigno Australia) and Brenton James Harrison (director of BSF Solutions) were involved in these breaches of the law.

With effect from 24 May 2024, the Court has granted permanent injunctions preventing Cigno Australia and BSF Solutions from:

  • demanding, receiving or accepting fees or charges, including amounts of loan principal, from consumers in relation to credit provided under the ‘No Upfront Charge Model’; and
  • engaging in further credit activity pursuant to the ‘No Upfront Charge Loan Model’, including by entering into new agreements with consumers, for so long as they do not hold an Australian Credit Licence.

Cigno Australia was ordered by the Court to, by 5th July 2024, send written communications to consumers who between July 2022 and December 2022 entered into agreements with Cigno Australia and BSF Solutions under the ‘No Upfront Charge Loan Model’.

The Court will later determine whether (among other things) Cigno Australia and Mark Swanepoel ought to pay a pecuniary penalty in respect of this conduct, and whether Mark Swanepoel should be restrained from carrying on a business engaging in credit activity.

Cigno Australia, BSF Solutions, Mr Swanepoel and Mr Harrison intend to appeal the decision of the Court and have filed an application for leave to appeal. If the appeal is successful, some or all of the orders of the Federal Court of Australia may be set aside.

Where can you get more information?

Where to go for further support

You can access legal advice in your state at: Free legal advice –

If you are experiencing trouble with debt, or money worries in general, contact:

  • the National Debt Helpline on 1800 007 007 or online chat (9:30am to 4.30pm, Monday to Friday).

If you need someone to talk to, contact:

  • Lifeline on 13 11 14 (24 hours) or their crisis support online chat or
  • Beyond Blue on 1300 22 46 36 (24 hours) or their webchat