Credit Score is a numerical rating (0-1,200 in Australia) that represents your creditworthiness based on your borrowing and repayment history. Lenders use it to decide whether to approve your loan application and what interest rate to offer.
How Credit Scores Work in Australia
The Three Credit Bureaus
Australia has three credit reporting bureaus, each with slightly different scoring ranges:
Equifax:
- Range: 0-1,200
- Below 509: Below average
- 510-621: Average
- 622-725: Good
- 726-832: Very good
- 833-1,200: Excellent
Experian:
- Range: 0-1,000
- Below 549: Below average
- 550-624: Average
- 625-699: Good
- 700-799: Very good
- 800-1,000: Excellent
Illion (formerly Dun & Bradstreet):
- Range: 0-1,000
- Below 500: Below average
- 500-599: Average
- 600-699: Good
- 700-799: Very good
- 800-1,000: Excellent
Most lenders use Equifax, so we'll focus on the 0-1,200 scale.
What Impacts Your Credit Score
1. Repayment History (35-40% of score)
Your payment track record is the biggest factor.
Positive impacts:
- Paying every bill on time for years
- No missed payments
- No defaults or late payments
Negative impacts:
- Missed payments: -10 to -50 points each
- Defaults (60+ days late): -200 to -350 points
- Court judgments: -250 to -400 points
- Bankruptcies: -400+ points
Example:
- Starting score: 750
- Miss 1 credit card payment (30 days late): Drop to 720
- Miss 3 payments (90 days, default listed): Drop to 450
2. Credit Inquiries (10-20% of score)
Every time you apply for credit, a "hard inquiry" is recorded.
Impact:
- 1-2 inquiries/year: Minimal impact
- 3-5 inquiries/year: -10 to -30 points
- 6+ inquiries/year: -50 to -100 points (looks desperate)
Example:
- You apply for 4 credit cards in 2 months
- Score drops from 700 to 640
- Lenders see you as high-risk
Tip: Multiple inquiries for the same type of loan (e.g., home loans) within 14 days count as one inquiry.
3. Credit Utilization (20-30% of score)
How much of your available credit you're using.
Formula: (Total credit used ÷ Total credit available) × 100
Ideal utilization: Under 30%
Example:
- Credit card limit: $20,000
- Balance: $5,000
- Utilization: 25% (good)
Poor example:
- Credit card limit: $10,000
- Balance: $9,500
- Utilization: 95% (very bad, suggests financial stress)
4. Length of Credit History (10-15% of score)
How long you've had credit accounts.
Example:
- Person A: Credit card for 10 years, always paid on time = 800 score
- Person B: Just opened first credit card = 650 score (even with perfect payments)
Tip: Don't close old credit cards—they boost your history length.
5. Credit Mix (5-10% of score)
Having different types of credit (mortgage, car loan, credit card) shows you can manage varied debt.
Example:
- Person A: Only credit cards = 700 score
- Person B: Mortgage + car loan + credit card = 750 score
Credit Score Ranges and Loan Outcomes
Excellent (833-1,200)
Home loans:
- Approval: Near-certain with adequate income
- Rates: Best available (5.8-6.2% p.a.)
- LVR: Up to 95% possible
Car loans:
- Approval: Easy
- Rates: 5.5-7.0% p.a.
Example scenario:
- Score: 890
- Income: $150K household
- Applying for $600K home loan (80% LVR)
- Result: Approved at 5.89% p.a. within 3 days
Very Good (726-832)
Home loans:
- Approval: Very likely with stable income
- Rates: Competitive (6.0-6.4% p.a.)
- LVR: Up to 90% with LMI
Car loans:
- Approval: Straightforward
- Rates: 6.5-8.0% p.a.
Example scenario:
- Score: 780
- Income: $120K household
- Applying for $50K car loan
- Result: Approved at 7.2% p.a., $8,400 total interest over 5 years
Good (622-725)
Home loans:
- Approval: Likely with solid income and employment
- Rates: Standard (6.2-6.8% p.a.)
- LVR: Up to 85% typically
Car loans:
- Approval: Generally approved
- Rates: 7.5-10.0% p.a.
Example scenario:
- Score: 680
- Income: $90K
- Applying for $400K home loan (80% LVR)
- Result: Approved at 6.5% p.a., but had to provide extra payslips and bank statements
Average (510-621)
Home loans:
- Approval: Possible but requires strong application
- Rates: Higher (6.8-8.0% p.a.)
- LVR: Usually max 80%, need larger deposit
- May require non-bank lender
Car loans:
- Approval: Near-prime lenders
- Rates: 10-14% p.a.
Example scenario:
- Score: 580
- Income: $100K
- Applying for $500K home loan (80% LVR)
- Major bank result: Declined
- Non-bank lender result: Approved at 7.8% p.a. (costs $60,000 more in interest over 30 years vs 5.8% rate)
Below Average (0-509)
Home loans:
- Approval: Difficult, specialist lenders only
- Rates: 8-12% p.a.
- LVR: Maximum 70-75%, need 25-30% deposit
- May require defaults/judgments to be paid first
Car loans:
- Approval: Bad credit lenders
- Rates: 15-20% p.a.
- Require significant deposit (30-40%)
Example scenario:
- Score: 450 (has 1 paid default from 2 years ago)
- Income: $110K
- Applying for $550K home loan with 20% deposit
- Specialist lender result: Approved at 9.2% p.a. (costs $180,000 more over 30 years vs 5.8% rate)
How to Check Your Credit Score
Free Methods
1. Equifax (GetCreditScore.com.au)
- Free credit score and basic report
- Updates monthly
2. Experian (Credit Savvy)
- Free credit score via Credit Savvy app
- Updates monthly
3. Illion (Credit Simple)
- Free credit score via Credit Simple
- Updates quarterly
4. Annual free credit report You're entitled to one free full credit report per year from each bureau.
What You'll See
Your credit report includes:
- Personal details (name, address, date of birth)
- Credit accounts (credit cards, loans, mortgages)
- Repayment history (last 2 years of payments)
- Credit inquiries (last 5 years)
- Defaults, judgments, bankruptcies
- Public record information
Example report:
Credit Score: 742 (Very Good)
Accounts:
- NAB Home Loan: $380,000 balance, never late
- CBA Credit Card: $5,000 limit, $1,200 balance, never late
- Commbank Car Loan: $15,000 balance, 1 late payment (30 days) in 2024
Inquiries:
- 2024: 2 inquiries (home loan refinancing)
- 2023: 1 inquiry (credit card)
Negative Items:
- None
How to Improve Your Credit Score
1. Pay Everything On Time
The single most important factor.
Strategy:
- Set up automatic payments for minimum amounts
- Use calendar reminders 3 days before due dates
- Pay bills as soon as you receive them
Impact:
- 12 months of on-time payments: +50 to +100 points
- 24+ months perfect history: +100 to +200 points
2. Reduce Credit Card Balances
Keep utilization under 30%.
Example:
- Current: $18,000 balance on $20,000 limit (90% utilization)
- Pay down to: $6,000 balance (30% utilization)
- Score impact: +40 to +80 points over 3-6 months
Pro tip: Pay down balances before the statement date (when balance is reported to credit bureaus).
3. Limit Credit Applications
Avoid applying for multiple loans/cards in short periods.
Strategy:
- Research and apply for one loan at a time
- Use pre-approval tools (soft inquiries) before formal applications
- Wait 3-6 months between credit applications if possible
Impact:
- Going from 5 inquiries/year to 1-2 inquiries/year: +30 to +60 points
4. Fix Errors on Your Credit File
Mistakes happen. Check your report annually.
Common errors:
- Paid debts still showing as unpaid
- Accounts that aren't yours (identity fraud)
- Incorrect late payments
- Defaults for amounts under $150 (illegal)
Example:
- You find a default listed for $800, but you paid it 2 years ago
- Provide proof to Equifax
- Default marked as "paid" or removed
- Score increases by 100-200 points
5. Consolidate Debts
Multiple accounts can hurt your score. Consolidating can help.
Example:
- Before: 4 credit cards ($15K total debt), 1 personal loan ($10K)
- After: 1 consolidation loan ($25K), close 3 credit cards
- Impact: Fewer accounts, lower utilization, +50 points over 6 months
6. Don't Close Old Accounts (Usually)
Length of credit history matters.
Exception: Close accounts with annual fees you're not using.
Example:
- Credit card opened 10 years ago, $0 balance, no annual fee
- Keep it open (adds to credit history length)
- Use it once every 6 months for small purchases to keep it active
7. Become an Authorized User
If you have limited credit history, being added as an authorized user on someone else's account (parent, spouse) can boost your score.
Example:
- Your partner has a 15-year-old credit card, perfect payment history
- They add you as authorized user
- Their positive history appears on your credit file
- Your score increases by 50-100 points
Timeline to Improve Your Score
3 months:
- Pay down credit card balances
- Fix errors on credit file
- Possible improvement: +20 to +60 points
6 months:
- Consistent on-time payments
- Lower credit utilization maintained
- Possible improvement: +50 to +100 points
12 months:
- Perfect payment history
- No new credit inquiries
- Defaults aging (if applicable)
- Possible improvement: +80 to +150 points
2+ years:
- Long track record of responsible credit use
- Old negative marks falling off (inquiries after 5 years, defaults after 5 years)
- Possible improvement: +150 to +300 points
Final Thoughts
Your credit score is a powerful financial tool:
- Check it regularly (at least once/year)
- Pay everything on time (most important factor)
- Keep credit utilization low (under 30%)
- Limit credit applications (only apply when necessary)
- Fix errors immediately (can boost score by 100+ points)
If you're applying for a major loan:
- Check your score 3-6 months before
- Give yourself time to improve it
- Work with a NIK Finance broker who can guide you to lenders that match your score
The difference between a 650 score and an 800 score on a $500,000 home loan:
- 650 score: 7.5% p.a. = $3,480/month
- 800 score: 5.9% p.a. = $2,960/month
- Savings: $520/month = $187,200 over 30 years
Improving your credit score is one of the highest-ROI financial moves you can make.