Key Takeaways
Your credit score is one of the first things a lender checks when you apply for a home loan. It’s a numerical summary of your credit history: how you’ve managed debt, whether you’ve paid bills on time, and how many credit applications you’ve made. A strong credit score can get you better interest rates and smoother approvals, while a poor score can limit your options or lead to rejection.
Many Australians don’t know their credit score until they apply for a loan, and by then, it can be too late to fix issues that could have been addressed months earlier. This guide explains how credit scores work in Australia, what affects them, and how to improve yours before applying for a home loan.
Australia has three main credit reporting bureaus: Equifax (formerly Veda), Experian, and illion. Each maintains a credit file on you and calculates a score based on your credit history. The most commonly used scale is Equifax’s 0-1200 range.
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| Score Range | Rating | Home Loan Impact |
|---|---|---|
| 833-1200 | Excellent | Best rates, fast approvals, all lenders |
| 726-832 | Very Good | Competitive rates, most lenders |
| 622-725 | Good | Standard rates, mainstream lenders |
| 510-621 | Average | Limited options, higher rates possible |
| 0-509 | Below Average | Specialist lenders only, higher rates |
Under Australia’s Comprehensive Credit Reporting (CCR) system, your credit file contains both positive and negative information:
Positive factors: On-time repayment history for credit cards, loans, and utilities. Regular, consistent repayments over a long period build a strong score. The longer your clean track record, the higher your score climbs.
Negative factors: Late payments (reported when 14+ days overdue), defaults (60+ days overdue on amounts over $150), court judgments, bankruptcy, and debt agreements. These remain on your file for 5-7 years depending on severity.
Credit enquiries: Every time you apply for credit (credit card, personal loan, car finance, home loan), an enquiry is recorded on your file. Multiple enquiries in a short period suggest financial stress and can lower your score. This is why it’s crucial to avoid shopping around by applying to multiple lenders yourself. A broker submits a single application, protecting your file.
Credit limits: The total credit available to you (including unused credit card limits) is recorded. High unused limits can paradoxically hurt your score and definitely reduce your borrowing capacity.
Pro Tip: Check your credit score at least 3-6 months before applying for a home loan. This gives you time to correct any errors, clear small defaults, close unused accounts, and improve your score before lenders see it. You can check your Equifax score for free at equifax.com.au.
If your credit score needs improvement before a home loan application, here are the most effective strategies:
Pay every bill on time. Set up direct debits for all regular payments including credit cards, phone bills, utilities, and insurance. Even a single late payment can significantly impact your score. If you can’t pay the full credit card balance, always pay at least the minimum by the due date.
Close unused credit accounts. Cancel credit cards you don’t use, close store accounts (Harvey Norman interest-free, etc.), and remove any buy-now-pay-later services. Each open account represents potential debt in the lender’s eyes.
Reduce credit card limits. If you have a $15,000 credit card limit but only use $3,000, call the bank and reduce the limit to $5,000. The lower limit improves both your credit profile and your borrowing capacity.
Don’t apply for new credit. Every application creates an enquiry. In the 6 months before a home loan application, avoid applying for any new credit, including store cards, BNPL accounts, and phone contracts on a plan.
Check for errors. Credit files can contain mistakes: accounts that aren’t yours, incorrect default listings, or outdated information. You have the right to dispute errors with the credit bureau and have them corrected.
Real Client Example
A young couple from Corio came to us wanting to buy their first home but had a credit score of 520 due to a $280 phone bill default from two years earlier and three credit enquiries from car finance applications they’d made in the past 6 months. We helped them dispute the phone default (which turned out to be a billing error) and advised them to wait 4 months before applying. Their score improved to 680 during that time, qualifying them for a mainstream lender at a competitive rate rather than a specialist lender charging 1.5% more. On their $450,000 loan, that 1.5% difference equals $6,750 per year in additional interest.
If you have significant credit impairments (paid or unpaid defaults, judgments, or a history of late payments), mainstream lenders may decline your application. However, this doesn’t mean home ownership is out of reach. Australia has a range of specialist and non-conforming lenders that specifically cater to borrowers with credit issues.
These lenders assess applications on a case-by-case basis, looking at the story behind the credit issues rather than just the score. They consider how long ago the issues occurred, whether there’s a reasonable explanation, what your current financial position looks like, and whether you’ve demonstrated improved financial behaviour since the issues.
Interest rates from specialist lenders are typically 1-3% higher than mainstream rates, and they may require a larger deposit (usually 15-20%). However, many offer a pathway to refinance to a mainstream lender once your credit file clears, usually after 2-3 years of clean repayment history.
Does checking my own credit score affect it?
No. Checking your own score is a “soft enquiry” and does not appear on your credit file or affect your score. You can check as often as you like without any impact.
How long do defaults stay on my credit file?
Defaults remain on your credit file for 5 years from the date they were listed. Serious credit infringements (like bankruptcy) remain for 7 years. After this period, they are automatically removed.
Will using a broker protect my credit score?
Yes. A broker submits your application to one lender at a time, creating only one credit enquiry. If you applied to three banks yourself, that’s three enquiries on your file. A broker does the comparison work without creating multiple enquiries, protecting your score.
Can I get a home loan with a default on my credit file?
Yes, but your options depend on the size, age, and status of the default. Small paid defaults over 12 months old may still be acceptable to some mainstream lenders. Larger or more recent defaults may require a specialist lender. A broker experienced in credit-impaired lending can advise on the best path forward.
Our experienced brokers compare options across 60+ lenders to find the right solution for your situation.
Director & Senior Finance Broker
With years of experience in mortgage broking and finance, Melanie helps clients across Geelong, the Surf Coast, Melbourne and regional Victoria navigate the complexities of home loans and business finance. Contact our team on 03 9020 2699.
