How Your Credit Score Affects Your Loan Application
Your credit score is one of the most important factors lenders assess when reviewing your home loan application. Understanding how it works — and how to improve it — can be the difference between approval and rejection.
What Is a Credit Score?
In Australia, credit scores are provided by three bureaus: Equifax, Experian, and illion. Each uses a slightly different scale, but generally:
- Excellent: 800–1,200 (Equifax scale)
- Very Good: 700–799
- Good: 625–699
- Fair: 550–624
- Below Average: Below 550
Lenders use your score to assess the risk of lending to you. A higher score means better loan terms, lower rates, and higher approval chances.
What Goes Into Your Credit Score?
Repayment History (most important): Whether you pay bills and loans on time. Even one missed payment can significantly drop your score.
Credit Applications: Every time you apply for credit, a "hard inquiry" is recorded. Multiple applications in a short period signal financial stress to lenders.
Credit Accounts: The types and number of accounts you hold — credit cards, personal loans, buy-now-pay-later services.
Defaults and Judgments: Unpaid debts listed as defaults remain on your file for 5 years. Court judgments stay for 5 years. Bankruptcies for 7 years.
Comprehensive Credit Reporting (CCR): Since 2018, positive data is also reported — such as on-time payments — giving lenders a fuller picture.
How Lenders Use Your Score
Lenders set minimum credit score thresholds. Most major banks prefer scores above 650–700. Some non-bank lenders accept lower scores but charge higher rates.
Beyond your score, lenders also review:
How to Check Your Credit Score
You are entitled to one free credit report per year from each bureau:
Check all three, as lenders may use any of them.
How to Improve Your Credit Score
1. Pay Everything On Time
Set up automatic payments for all bills, loans, and credit cards. Even utility bills and phone plans are reported.
2. Reduce Credit Card Limits
High credit limits reduce your borrowing capacity in lenders' eyes, even if balances are zero. Lower limits to what you actually need.
3. Avoid Multiple Credit Applications
Each hard inquiry stays on your file for 5 years. Space out applications and use comparison tools that do soft checks.
4. Clear Any Defaults
Pay off outstanding defaults where possible. Even paid defaults remain on file, but lenders view them more favorably than unpaid ones.
5. Close Unused Accounts
Reduce the number of open credit accounts, especially store cards and BNPL services.
6. Give It Time
Credit improvement takes 3–12 months of consistent behavior. Start well before you plan to apply for a loan.
Credit Score and Interest Rates
Your credit score directly impacts the rate you are offered:
A 0.5% rate difference on a $500,000 loan over 30 years equals approximately $50,000 in additional interest. Your credit score is worth investing time to improve.
Common Myths
Myth: Checking your own score hurts it. Fact: Self-checks are soft inquiries and have no impact.
Myth: You have one universal credit score. Fact: Each bureau calculates its own score, and different lenders use different bureaus.
Myth: Closing old accounts improves your score. Fact: Older accounts demonstrate long credit history — closing them can sometimes reduce your score.
If your score needs work, give yourself 6–12 months before applying. The effort invested in improving your credit score is one of the highest-return financial actions you can take.