Equifax’s head of insights Carrie Cheung
The deep pool of household savings created during the Covid-19 pandemic in 2020 is continuing to enhance the financial risk profile of Australians, according to leading consumer credit ratings provider, Equifax.
Equifax’s measure of the average credit rating of Australian household borrowers rose in the 12 months to the end of the June to 855 points out of a maximum possible score of 1200.
Based on the company’s points rating methodology the average financial condition of adult Australians is now classified as “excellent” – an improvement on the 2022 finding of “very good” when the average national rating was 846 points.
Equifax classifies credit scores between 853 and 1200 points as excellent and scores between 735 and 852 points as very good.
The latest findings on national credit ratings were drawn from a dataset of two million Australian credit scores.
Equifax’s head of insights Carrie Cheung attributed the improvement to households continuing to draw on savings accumulated during the pandemic.
Australia’s household savings ratio hit a peak of 23.6 per cent in June 2020 as consumers banked generous government handouts at the height of the pandemic.
“Since then, savings have been in consistent decline - a trend that has accelerated in 2023, reaching a 3.2 per cent ratio,” Cheung said.
“Using savings to manage the higher cash rates and increased cost 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.”
Cheung did not comment on whether the average credit score was likely to fall in the next 12 months but noted that missed loan repayments were now trending up across all age groups.
“A lower credit score doesn’t necessarily mean there is reason to be concerned,” Cheung said.
“However, as we look at the macroeconomic context, we start to see pockets of strained consumers, especially among the younger population.”
Cheung said that rising official rates had spawned a boom in refinancing activity among home borrowers, with Equifax data showing 38 per cent of loan enquiries in August related to refinancings.
She said that refinancing activity had been running at 26 per cent in 2019.
The Equifax report also sheds some light on the credit profile of borrowers in the refinancing market.
A key finding is that the average credit score of borrowers making refinancing enquiries has risen since the pandemic to 949 points.
Refinancing borrowers under 30 had an average credit score of 931 in 2023 compared to 879 in 2019.
Refinancers in the 31-40 age group now have an average credit score of 951 compared to 906 before the pandemic.
The average risk profile of people applying for buy now pay later products continues to decline.
According to Equifax, the mean credit score of BNPL applicants was 582 this year, whereas in 2021 it was 694.