When you're ready to take the plunge into homeownership or looking to refinance your current mortgage, your credit score becomes more than just a number—it's your financial reputation on display.
Lenders use your credit score as a key indicator of how likely you are to repay your loan on time. A strong credit score can unlock better interest rates and loan terms, potentially saving you thousands over the life of your mortgage.
But what exactly is considered a "good" credit score for getting a home loan, and what can you do if yours needs improvement?
What is a credit score and how is it calculated?
Your credit score is a numerical representation of your creditworthiness. It tells lenders how reliable you are as a borrower based on your past financial behavior.
In Australia, credit scores typically range from 0 to 1,000 or 0 to 1,200, depending on which credit reporting agency is calculating it. The three main credit reporting agencies in Australia are:
- Illion (0-1,000)
- Experian (0-1,000)
- Equifax (0-1,200)
Your score is calculated based on several key factors:
1. Your credit history
This includes:
- Your repayment history on loans and credit cards
- Any defaults or missed payments
- Court judgments or bankruptcies
- The types of credit you've had
2. Credit applications
Each time you apply for credit, it's recorded on your file. Multiple applications in a short period can impact your score.
3. Your profile as a borrower
This encompasses:
- The age of your credit history
- Your personal details
- Employment information
- Overall credit utilisation
What credit score do you need for a home loan?
While there's no universal minimum score required for a home loan, a stronger credit score generally improves your options.
Different lenders have different risk appetites and scoring criteria. Here's how some of Australia's major lenders approach credit scores:
This variation in approaches highlights why working with a mortgage broker can be valuable—we understand each lender's unique assessment criteria and can match you with the most suitable options.
Here's a general overview of how different credit profiles might be viewed:
Below 500: Challenging territory
With a lower credit score, conventional mortgage options may be more limited. Some major banks and traditional lenders might have stricter requirements for approval.
500-699: More options available
In this range, you'll likely have more home loan options, though terms and rates may vary depending on your specific situation and the lender.
700+: Stronger position
Higher credit scores generally put you in a better position when applying for home loans. You may have access to more competitive rates and favorable loan terms.
How different reporting agencies categorise credit scores
Each credit reporting agency uses different scoring models. Here's a general overview based on available information:
Illion (0-1,000)
Illion's scoring range goes from 0 to 1,000, with higher scores indicating better creditworthiness.
Experian (0-1,000)
Experian also uses a 0 to 1,000 scale for their credit scores in Australia.
Equifax (0-1,200)
Equifax has a broader scale that ranges from 0 to 1,200.
Can you get a home loan with a low credit score?
Yes—but it may be more challenging.
While major banks might have stricter requirements, specialist lenders who work with non-conforming borrowers can offer alternatives. These loans typically come with different terms than standard loans, which may include:
- Different interest rates
- Various fee structures
- Specific deposit requirements
If you're approved for a home loan with credit challenges, making consistent, on-time payments can help rebuild your credit profile over time.
How your credit score affects your mortgage beyond approval
Your credit score doesn't just determine whether you get approved—it can influence various aspects of your home loan:
Interest rates
Your credit history may affect the interest rates you're offered. Generally, a stronger credit profile can help you access more competitive rates.
Loan terms
Your credit score can potentially impact loan terms, including:
- Loan-to-value ratio considerations
- Access to certain loan features
- Fixed vs. variable rate options
Refinancing opportunities
A strong credit profile may provide more options when you want to refinance in the future.
7 practical ways to improve your credit score before applying for a mortgage
The good news: credit scores aren't permanent. Here's how to boost yours:
1. Make all payments on time
Consistently paying bills, loans, and credit cards on time is the most effective way to improve your score over time.
2. Check your credit report for errors
Credit reporting mistakes happen more often than you might think. Request your free credit report and dispute any inaccuracies.
3. Reduce your credit card limits
Even unused credit limits are considered potential debt. Consider lowering your credit card limits if you don't need them.
4. Pay down existing debt
Reducing your debt-to-income ratio can significantly improve your creditworthiness.
5. Avoid multiple credit applications
Each application can temporarily lower your score, so apply selectively and strategically.
6. Keep old credit accounts open
Length of credit history matters. If you have old accounts in good standing, consider keeping them open.
7. Seek professional advice
A mortgage broker can provide personalized guidance on improving your credit position before applying.
How often your credit score changes
Your credit score isn't static—it updates regularly as new information is reported. Credit reporting bodies typically update information as it's received from lenders and other sources.
Factors that can trigger changes include:
- New credit inquiries
- Changes to your repayment history
- Adjustments to credit utilization
- Public records (like bankruptcies or court judgments)
- Corrections to reporting errors
It's a good idea to check your credit score periodically, especially before applying for a major loan like a mortgage.
Where to check your credit score for free
Before applying for a home loan, it's wise to know where you stand. Fortunately, there are several ways to check your credit score without paying a fee:
Official credit reporting bodies
Each credit reporting agency in Australia is required to provide you with a free copy of your credit report once every 12 months:
- Equifax - Visit equifax.com.au or call 13 83 32
- Experian - Visit experian.com.au or call 1300 783 684
- Illion - Visit illion.com.au or call 1300 734 806
Online financial services
Many financial comparison websites offer free credit score checks as part of their services:
- Canstar
- Finder
- Credit Simple
- Credit Savvy
These services typically access your Equifax or Experian score and provide regular updates.
Through your bank
Several Australian banks now offer free credit score checks to their customers through their online banking platforms, including:
- CommBank
- NAB
- ANZ Plus
- Westpac
What to remember when checking your score
- Different services may show different scores because they access different credit reporting agencies
- Free credit score services may not provide your full credit report
- Some services may require you to agree to receive marketing communications
- Check how often the score is updated - some services refresh monthly, others quarterly
For the most comprehensive picture of your credit health, consider checking your score with all three major credit reporting agencies before applying for a mortgage.
Comprehensive Credit Reporting (CCR) and your mortgage chances
Australia's move to Comprehensive Credit Reporting has changed the credit landscape. Previously, credit reports primarily highlighted negative information like defaults.
Now, positive behavior—like making consistent on-time payments—is also recorded. This means borrowers with thin credit files but good financial habits have a better chance of building strong credit scores.
The bottom line: Knowledge is power
Understanding your credit score before applying for a mortgage puts you in control of your financial future. Whether your score is already excellent or needs some work, there are home loan options available.
The key is knowing where you stand and taking proactive steps to improve your position.
How a mortgage broker can help with credit score challenges
When dealing with credit score issues, a mortgage broker can be your greatest ally:
- We have relationships with multiple lenders, including those who specialise in non-conforming loans
- We can match your specific credit situation with the right lender
- We understand the nuances of different credit scoring models and how they impact applications
- We can provide personalized advice on improving your credit position
- We save you from making multiple applications that could further damage your score
- We can negotiate on your behalf, highlighting the positive aspects of your financial situation
Ready to explore your mortgage options based on your current credit situation? Contact us today for a personalised assessment and expert guidance on securing the best possible home loan for your circumstances.
