Last Updated: 19th March, 2024

Your credit score is a number between 0 and 1200. Credit Reporting Bureaus in Australia calculate their own credit scores, ranging from below average to excellent. Your credit score is one of the many factors that help you get approved for a home loan. A higher credit score is good, as you’re seen as a less risky borrower.

What Is A Good Credit Score In Australia?

Credit Bureau Excellent Very Good Good Fair Below Average
Equifax 833-1200 726-832 622-725 510-621 0-509
Experian 800-1000 700-799 625-699 550-621 0-549
Illion 800-1000 700-799 500-699 300-499 0-299
Source: Equifax, Experian, Illion

What Can Affect Your Credit Score?

Your credit score is a numerical representation of your credit behaviour. Most of the information on your credit report affects your credit score. Each credit reporting bureau uses its own algorithms to calculate the credit scores. The same borrower can get different scores from different bureaus based on the varying algorithms. Your credit score is based on:
Information on credit report Details
Credit history Type of credit providers Repayment history (late or missed payments) Defaults Public records (bankruptcies, court writs and judgements)
Credit applications The amount of credit The type of credit Number of credit enquiries Frequency of credit enquiries
Credit profile The age of your credit report Personal details
Let’s explore how the information on your credit report affects your credit score:

Credit History

  • Type of credit provider: Your credit card limit is listed on the credit report. Lenders will assess the credit limit to determine how much risk is taken on. Each type of credit provider presents a different risk to your credit score. Applying for a home loan from a reputable lender will increase your score while applying for a credit card from a retail shop will decrease it.
  • Repayment history (late or missed payments): This includes information on whether payments were made on time or missed. Missed payments will still be recorded on your credit report, even after they’re paid. Your credit score will improve if you can get back on track with your repayments.
  • Defaults: A default is listed on your credit report if a payment becomes 60 days overdue. Even once you’ve paid the default, it will remain on your credit report for up to five years. Having defaults will decrease your credit score.
  • Public records: These include bankruptcy and debt agreements. Any court judgements made against you are also on your credit report. These will lower your credit score.

Credit Applications

  • The amount of credit: Applying for a smaller credit amount holds a different risk to a larger loan.
  • The type of credit: Just as there are different types of credit providers, there are also different types of credit. These include credit cards, buy now, pay later services, home loans and personal loans. Each of these credit products holds a different risk. If you can manage a diverse mix of credit products, it improves your credit score.
  • The number of credit enquiries: Each time you apply for credit, an enquiry is added to your credit report. Even buy now, pay later transactions are recorded. If there are too many credit enquiries, a lender could see you as a high-risk borrower.
  • Frequency of credit enquiries: If you’ve been applying for credit with different providers within a short time, it lowers your credit score. Spacing out your credit applications and applying with a few select lenders is a better option.

Credit Profile

  • The age of your credit report: This is how long ago your credit report was created. A relatively new credit report poses a different risk than one that was established a few years ago. An older credit report is more favourable to lenders. It’s easier for lenders to assess a credit file that has 10 years worth of credit information compared to a credit report that is a year old. Applying for a small credit card when you are young can be a good way to build a credit score.
  • Personal details: These include the duration of your employment, how long you’ve lived at your current address, your age and your name. While personal details do not affect credit score, these factors are used to assess credit risk. A person who moves house or changes jobs frequently is considered a greater risk.

What Does Not Affect Your Credit Score?

You can now see that how well you manage debt and pay bills on time affects your credit score. The following factors and behaviours will not affect it:
  • Salary, savings and super
  • Checking your own credit score
  • Race, religion and relationship status
  • The assets you own
  • Old information, as listings will be removed from the credit report after a few years

What Can Negatively Affect My Credit Score?

These behaviours will bring down your credit score:
  • Missed or late payments
  • Failures to pay, leading to defaults
  • Not fixing errors on the credit report
  • Receiving court judgements over unpaid debts
  • Declared bankruptcy
  • Bad debt (quick cash loans)
  • Too many credit enquiries in a short period of time

What Can Positively Affect My Credit Score?

These positive credit behaviours will improve your credit score:
  • An established trend of punctual repayments
  • Managing good debt like car loans, student loans and mortgages and paying them on time.
  • Using credit cards within their limits
  • Paying off debts on time
  • Minimising credit applications
Your credit score does not stay the same forever. Positive credit behaviour will increase a low credit score over the years. Furthermore, when bad credit listings are removed, credit scores improve.

Does My Credit Card Affect My Loan Application?

Yes, your credit card can affect your loan application.

Having a credit card isn’t necessarily a bad thing when you’re applying for a home loan. If you have one credit card, pay it down regularly and never use the full limit, then you may generally be looked upon more favourably than someone without a credit card. This is because compared with no credit history, a clear history of repayments made on time and in full is a better indication that you are likely to manage your mortgage repayments properly.

On the other hand, if you have multiple cards, lenders may view it as a red flag in your loan application. They prefer their potential customers not to be heavily reliant on credit. Moreover, if you have one late payment or are over your limit, then it may be the reason for lenders to decline your loan.

One of the major drawbacks of having multiple credit cards is that even if you have never come close to reaching your credit limit, most banks will generally assess your expense at 2-3% of your limit per month.

To put it simply, for a $20,000 credit limit, lenders may consider your minimum monthly repayment to be $600 (3%). When lenders assess your borrowing capacity, they compare your net monthly income with your net monthly expenses. Here, $600 would be added to your monthly expenses, reducing your overall borrowing power accordingly.

So, having three credit cards may reduce your borrowing power significantly. Even if you do not use a credit card, lenders will calculate it as an expense in their evaluation of your loan application.

You can reduce your credit card limit to improve borrowing power.

If you make your repayments on time, however, some lenders may not even take your credit limit into consideration when assessing your borrowing power, and instead use the largest balance on your card from the last three months to calculate your expense related to your card and, therefore, its impact on your borrowing power.

In any case, it is recommended that you reduce your credit-card limits to the minimum amount that you require; for example, if your monthly expenses total just $2,000, then you may not really need a limit of $15,000. You may be able to get a lower limit by calling your bank and asking them to reduce it.

If you provide evidence of the reduction in the form of a letter from the bank confirming that your credit limit has been reduced, then the lender will use the new limit in its assessment. This may increase your likelihood of getting approval on the home loan.

How Long Does Information Remain On A Credit Report?

Information will remain on your credit report for at least a couple of years. Here’s how long each credit listing will remain on your credit report.
Credit Listing Time on credit report
Default 5 years
Repayment history 2 years
Credit enquiry 5 years
Debt agreement 5 years from when the agreement was made OR 2 years after the agreement was terminated
Bankruptcy 5 years from when a person was declared bankrupt OR 2 years from the day a person is no longer bankrupt

Frequently Asked Questions

Why Does Your Credit Score Matter?

Your credit score is one of the factors a lender will use to determine your risk profile and whether to lend you money. A good credit score is a sign that you can manage debt and make repayments on time. Your credit score can help:

Does Checking Credit Score Affect It?

No, checking your credit score does not affect it. This is considered a soft enquiry and will neither increase nor decrease your score

Hard enquiry vs soft enquiry

When a lender runs a credit check for your application during its approval process, it is a hard enquiry and will appear on your credit report. Several hard enquiries in a short time will temporarily lower your credit score, as it’s a sign that you are experiencing difficulties getting approved. A soft enquiry has no impact on your credit score, since it is not linked with getting approved for a loan.

Do Utility Bills Affect My Credit Score?

Yes, but only if you do not pay them. Even though telecom and utility providers are not credit institutions, they can report a default to a credit reporting bureau if:
  • The amount owed is more than $150
  • It has been 60 days or more since the due date
  • The person could not be contacted when asked to pay the debt
A good repayment history on utility bills does not improve your score, since these companies are not licensed credit providers.

Is Using A Credit Card Bad For My Credit Score?

Not really. Using a credit card does not harm your credit score, if you make all the repayments on time. If you do not have an active line of credit, then it’s difficult for a lender to assess how well you can manage debt.

Does Getting Rejected For A Loan Or Credit Card Affect Your Credit Score?

Yes, it can. Applications for credit products like home loans and credit cards are recorded on your credit report. If your application is denied, this will lower your credit score. That’s why it is important to apply with a lender whose eligibility requirements you meet and who understands your circumstances.

Does Having A Savings Account Affect Your Credit Score?

No, a savings account does not have a direct effect on your credit score. Banks and other financial institutions carry out credit checks only when you apply for credit, such as a home loan or personal loan. Your credit history is not assessed when you open a savings account. However, opening a savings account is a good way to demonstrate you have a handle on your finances. If you can show a history of making regular deposits into your account, it can improve your chances of accessing credit and show lenders you have financial discipline.

My Credit Score Is Good, Why Can’t I Get A Home Loan?

A credit score is not the only factor lenders assess when applying for a home loan. Even with a good credit score, a borrower can still be declined for a loan if:
  • The lender does not believe the borrower can service the loan repayments
  • The borrower does not meet the lending criteria
  • The borrower is buying property in a risky location
  • The borrower did not save a large enough deposit
  • The borrower failed to provide the documents needed to get approved

A credit score helps a lender determine the risk level of the borrower. Once you know what does and doesn’t affect your credit score, you can work towards maintaining or improving it. At Home Loan Experts, we are not just mortgage brokers, we are credit experts. We have helped thousands of home buyers with bad credit get approved for a home loan. Call us today on 1300 889 743 or complete our free assessment form.