What Affects Your Credit Score in Australia

Your credit score isn't just a number – it's your financial passport to everything from home loans to car finance. Understanding exactly what affects your credit score is the first step to taking control of your financial future and accessing better rates on loans and credit cards.

Most Australians don't realize that even small changes in their financial behavior can dramatically impact their credit score. A single late payment can drop your score by 50-100 points, while maxing out a credit card can cause similar damage – potentially costing you thousands in higher interest rates.

The 5 Key Factors That Affect Your Credit Score

1. Payment History (35% of Your Score) – The Most Important Factor

Your payment history is by far the most significant factor in determining your credit score. This includes:

• On-time payments: Every payment made by the due date helps your score
• Late payments: Payments 14+ days late can be reported to credit agencies
• Defaults: Payments 60+ days overdue on amounts over $150
• Court judgments: Legal actions for unpaid debts
• Bankruptcies: The most severe negative mark

2. Credit Utilization (30% of Your Score) – Keep It Under 30%

Credit utilization is how much of your available credit you're using. It's calculated as:

Credit Utilization = Current Balance ÷ Credit Limit × 100

3. Length of Credit History (15% of Your Score) – Time Matters

This factor considers:

• Age of your oldest account
• Average age of all accounts
• How long specific accounts have been established

Strategies to Optimize:

• Keep old credit cards open, even if you don't use them
• Avoid closing your first credit card
• If you must close cards, close newer accounts first
• Don't open multiple new accounts in short periods

4. Types of Credit (10% of Your Score) – Diversity Helps

Credit scoring models favor a diverse mix of credit types, including:

• Credit cards (revolving credit)
• Personal loans (installment loans)
• Home loans (secured loans)
• Car loans (secured installment loans)
• Store cards (retail credit)

What This Means: Having both credit cards and loans shows lenders you can manage different types of credit responsibly. However, don't take out loans just to improve your credit mix – only borrow what you need.

5. New Credit Inquiries (10% of Your Score) – Apply Sparingly

Every time you apply for credit, the lender performs a "hard inquiry" which can temporarily lower your score by 5-10 points.

Types of Credit Checks:

• Soft inquiry: Checking your own score, pre-approval checks (no impact)
• Hard inquiry: Formal credit applications (impacts score)

Smart Application Strategy:

• Space out credit applications by at least 6 months
• Shop for rates within a 14-45 day window for car/home loans (multiple inquiries count as one)
• Avoid applying for multiple credit cards in short periods
• Check if lenders offer "soft pull" pre-approvals

Understanding Credit Score Ranges in Australia

Different credit reporting agencies use different scales:

Equifax (0-1,200)

• Below Average: 0-509
• Average: 510-621
• Good: 622-725
• Very Good: 726-832
• Excellent: 833-1,200

Experian (0-1,000)

• Very Poor: 0-549
• Poor: 550-624
• Fair: 625-699
• Good: 700-799
• Excellent: 800-1,000

illion (0-1,000)

• Below Average: 0-499
• Average: 500-699
• Good: 700-799
• Very Good: 800-899
• Excellent: 900-1,000

What Doesn't Affect Your Credit Score

It's important to know what doesn't impact your score:

• Income level: Your salary isn't reported to credit agencies
• Employment status: Being unemployed doesn't directly hurt your score
• Age, gender, race: Legally protected from consideration
• Checking your own score: Soft inquiries have no impact
• Savings account balances: Bank balances aren't reported
• Utility payments: Unless they go to collections

How to Improve Your Credit Score Fast

Immediate Actions (Within 30 Days):

• Pay down credit card balances below 30% of limits
• Pay all bills on time moving forward
• Check for errors on your credit reports
• Set up automatic payments for minimum amounts

Medium-term Actions (2-6 Months):

• Dispute any errors found on your credit report
• Pay balances down further to under 10% utilization
• Don't close old credit cards
• Limit new credit applications

Common Credit Score Myths Debunked

Myth: "I need to carry a balance on my credit cards to build credit"
Truth: Paying in full each month is better for your score and saves interest.

Myth: "Closing credit cards will improve my score"
Truth: Closing cards can hurt your score by reducing available credit and average account age.

Myth: "Checking my score will hurt it"
Truth: Checking your own score is a soft inquiry with zero impact.

Myth: "My income affects my credit score"
Truth: Credit scores are based on credit history, not income.

The Real Impact of Credit Scores on Loan Approvals

Your credit score directly affects:

Home Loan Approvals:

• Excellent (800+): Best rates, easy approval
• Good (700-799): Good rates, standard approval
• Fair (600-699): Higher rates, stricter conditions
• Poor (Below 600): May need specialist lenders

When to Seek Professional Credit Repair Help

Consider professional help if you have:

• Multiple defaults on your credit file
• Incorrect information that won't come off
• Court judgments for debts you've paid
• Complex credit issues affecting loan approvals
• Urgent need for score improvement (home purchase, etc.)