What Is a Credit Score?

A credit score is a numerical representation of your creditworthiness - essentially, how reliable you are at paying back borrowed money. In Australia, credit scores are calculated by three main credit reporting bureaus: Equifax, Experian, and Illion (formerly Dun & Bradstreet).

When you apply for a loan, credit card, or even a mobile phone plan, lenders check your credit score to assess the risk of lending to you. A higher score means lower risk, which translates to better approval chances and interest rates.

Credit Score Ranges in Australia

Each credit bureau uses different scoring ranges. Here's how they compare:

What Affects Your Credit Score?

Your credit score is calculated based on information in your credit report. Here are the key factors that influence your score:

1. Payment History (Most Important)

This is the single biggest factor. Late payments, defaults, and missed payments have a significant negative impact. Under Comprehensive Credit Reporting (CCR), even late utility bills and phone payments can appear on your report.

2. Credit Enquiries

Every time you apply for credit (loans, credit cards, even some phone plans), a "hard enquiry" is recorded on your file. Too many enquiries in a short period suggests financial stress and can lower your score.

3. Credit History Length

A longer credit history generally helps your score. This includes how long your accounts have been open and the age of your oldest account. This is why closing old credit cards (even if unused) can sometimes hurt your score.

4. Types of Credit

Having a mix of different credit types (credit card, home loan, car loan) can positively influence your score, showing you can manage various forms of credit responsibly.

5. Credit Limits and Utilisation

Under CCR, lenders can now see your credit limits. High credit card limits (even if unused) and high utilisation (using most of your available credit) can negatively impact your score.

Comprehensive Credit Reporting (CCR) in Australia

Since July 2018, Australia has operated under Comprehensive Credit Reporting. This means credit bureaus now collect both positive and negative information about your credit behaviour.

What's Included in CCR:

• Repayment history: Whether you pay on time each month
• Credit account information: Types of credit accounts you have
• Credit limits: Your approved credit limits
• Account opening/closing dates: When accounts were opened and closed
• Defaults and serious infringements: Unpaid debts and negative events

The good news is that if you consistently pay on time, this positive behaviour will now boost your score over time.

Why Your Credit Score Matters

Your credit score has real-world financial implications:

1. Loan Approvals

A poor credit score can result in outright rejection for loans, mortgages, and credit cards. Even with government schemes like the First Home Guarantee, lenders still assess your creditworthiness.

2. Interest Rates

Many lenders now use risk-based pricing. A lower credit score often means higher interest rates, costing you thousands over the life of a loan.

*Example calculations based on a $500,000 principal and interest loan over 30 years. Actual rates vary by lender.

3. Rental Applications

Many landlords and property managers now run credit checks on prospective tenants. A poor credit history can make it harder to secure rental properties, especially in competitive markets like Sydney and Melbourne.

4. Insurance Premiums

Some insurers use credit information to assess risk. While not universal in Australia, a poor credit history may impact your premiums for certain insurance products.

5. Employment

Some employers, particularly in finance and government sectors, may run credit checks as part of background screening. Significant credit issues could impact certain job applications.

How to Check Your Credit Score for Free

Under Australian law, you're entitled to a free copy of your credit report from each bureau once every 3 months. Here's where to get yours:

How to Improve Your Credit Score

Building good credit takes time, but these strategies will help improve your score:

1. Pay Bills on Time, Every Time

Set up direct debits or reminders to ensure you never miss a payment. Even utility bills and phone payments are now reported under CCR. A consistent history of on-time payments is the fastest way to build a positive credit history.

2. Reduce Credit Card Limits

High credit limits can be seen as potential debt. If you have a $20,000 credit card limit but only need $5,000, consider requesting a limit reduction. This shows lenders you're managing credit responsibly.

3. Limit Credit Applications

Each credit application leaves a mark on your file. Space out applications and only apply for credit you genuinely need. Use comparison websites that offer "soft checks" before formally applying.

4. Check Your Credit Report for Errors

Mistakes happen. Review your credit report regularly and dispute any errors. Common issues include:

• Accounts that aren't yours (possible identity theft)
• Incorrect personal details
• Defaults that should have been removed
• Duplicate listings

5. Keep Old Accounts Open

The length of your credit history matters. If you have an old credit card with no annual fee, consider keeping it open (even with minimal use) to maintain a longer credit history.

6. Pay Down Existing Debt

Reducing your credit utilisation ratio improves your score. Focus on paying down credit cards and other revolving credit.

Common Credit Score Myths

Myth 1: "Checking my own score hurts it"

False. Checking your own credit score is a "soft enquiry" and has no impact on your score. Check it regularly to monitor your progress.

Myth 2: "Closing credit cards improves my score"

Often false. Closing old accounts can reduce your credit history length and increase your utilisation ratio, potentially lowering your score.

Myth 3: "Paying off a default removes it from my report"

False. Defaults stay on your credit report for 5 years from the date of the default, even if paid. However, a paid default looks better than an unpaid one.

Myth 4: "I need to carry a balance to build credit"

False. Paying your credit card in full each month still counts as positive repayment history. You don't need to pay interest to build credit.

Myth 5: "Income affects my credit score"

False. Your income is not part of your credit score calculation. However, lenders do assess your income separately when evaluating loan applications.

Credit Score for Newcomers to Australia

If you've recently arrived in Australia, you likely have no local credit history. Here's how to build credit as a newcomer:

• Get a mobile phone contract - Postpaid plans report to credit bureaus
• Start with a secured credit card - Some banks offer cards for thin credit files
• Pay all bills on time - Utilities, rent, and subscriptions all count
• Consider a small personal loan - Even a small loan can help establish credit history
• Be patient - Building credit takes 6-12 months minimum

Read our complete guide to building credit as a newcomer →

BNPL and Your Credit Score

Buy Now Pay Later services like Afterpay, Zip, and Klarna have become hugely popular in Australia. But how do they affect your credit score?

Current impact of BNPL on credit:

• Multiple accounts: Having many active BNPL accounts may concern lenders
• Missed payments: Late BNPL payments can be reported as defaults
• Loan applications: Banks often ask about BNPL usage during mortgage applications
• Future changes: Under new regulations, BNPL usage will be more visible on credit reports

Learn more about how BNPL affects your credit →

When to Get Professional Help

Consider seeking help from a financial counsellor if:

• You have multiple defaults or a bankruptcy on your record
• You're struggling to manage debt repayments
• You've been a victim of identity theft
• You need help disputing errors on your credit report

Free financial counselling is available through the National Debt Helpline on 1800 007 007.

Related Tools and Resources

Key Takeaways