How Do Credit Scores Work In Australia?
Whether you’re planning to buy a home, apply for a loan or build your financial health, understanding how credit scores work in Australia is key to making informed financial decisions and improving your borrowing opportunities.
In this article, we break down what a credit score is, how they work in Australia, and the dos and don’ts to improve it.
Skip to:
- What is a credit score?
- How do credit scores work?
- Who are the credit reporting bureaus in Australia?
- What makes up a credit score?
- How long do things stay on record?
- What is a good credit score?
- What doesn’t affect your credit score?
- Busting common credit score myths
- “Can I improve my score quickly?”
- Improving your credit score: Dos and Don’ts
What is a credit score?
A credit score is a numerical rating that represents how likely you are to repay borrowed money.
It is based on your credit history, which includes factors like how much debt you have, how regularly you pay your bills, and how long you’ve had credit accounts (e.g. loans).
Lenders use them to decide if you’re eligible for a loan or mortgage and what interest rate you’ll pay.
How do credit scores work?
Credit Reporting Bureaus use AI and algorithm technology to create credit scores. They’re constantly changing and there are multiple scoring systems and Credit Reporting Bureaus.
They take into account a number of factors, including…
- Employment + employment history.
- Residential data.
- Length of credit report.
- Number of credit enquiries.
- Negative data such as defaults, court action, bankruptcies and insolvencies.
- Repayment history information.
- Financial hardship information.
Who are the credit reporting bureaus in Australia?
In Australia, your credit reports are managed by three main credit reporting bureaus: Equifax, illion and Experian. Each reporting bureau collects information about your credit history, but their scoring systems and criteria are different.
Equifax scores you out of 1,200 (see below framework), whereas Experian and illion score Australians out of 1,000. This means it is possible that your credit score may be different depending on the bureau, even with the same information.
Here is an example of credit scores across each bureau:
| Credit score bands | Equifax | Experian | Illion |
|---|---|---|---|
| Below average(*low for Illion) | 0 – 579 | 0 – 549 | 0 – 299 |
| Average (*Fair for Illion) | 580 – 669 | 550 – 624 | 300 – 499 |
| Good (*Average for Illion) | 670 – 739 | 625 – 699 | 500 – 699 |
| Very Good | 740 – 799 | 700 – 799 | 700 – 799 |
| Excellent | 800 – 1200 | 800 – 1000 | 800 – 1000 |
Source: Clear Score
What makes up your credit score?
The MFAA credit score burger
Source: Mortgage and Finance Association of Australia
How long do things stay on record?
It’s not a matter of turning your finances around once you’re ready to buy a house, some actions have a long-lasting impact that can cause a headache for your future self.
How long do black marks stick around?
- Valid payment defaults: 5 years from the start date, not the date of payment
- Unpaid court actions: 5 years from date of entry
- Bankruptcies (including part 9 debt agreements): 5-7 years
- Legitimate credit enquiries: 5 years
- Links to old companies once you cease being a director: Up to 10 years
- Administration or other Australian Securities and Investments Commission (ASIC) notifications: Forever!
What is a good credit score?
Exact numbers will vary depending on the Credit Reporting Bureaus.
The below example ratings are from the Equifax Free Client Report.
Note: The default credit score is 750.
Source: Equifax Free Client Report
Why is it important?
- It increases the chances of getting loan approval and being looked upon favourably by lenders.
- It helps you negotiate a better deal on your loan terms.
- You can get lower interest rates on future or existing loans.
However, you don’t need to obsess over the specific numbers.
If you’re spending responsibly, paying your bills and repayments on time, and remain focused on achieving your personal financial goals, your credit score will naturally improve as a reflection of your good financial habits.
What doesn’t affect your credit score?
Checking your credit score (with some guidelines)
In Australia, you have a right to check your credit score every 3 months for FREE. All you need to do is contact one of the three credit reporting bureaus.
You can also get your credit score for free at any time using online credit score providers. This is considered a ‘soft enquiry’.
If you apply for a new line of credit with a lender, they wil conduct a ‘hard enquiry’. This will impact your credit score.
HELP Loans
Government student loans are not reported to credit reporting agencies and therefore do not affect your credit score.
Busting common credit score myths
We don’t have credit scores in Australia
Yes, we do have credit scores in Australia
You need to use a credit card to have a good credit score
Not true, and a poorly managed credit card can actually decrease your credit score
No debt = good credit score
There are many factors that contribute to a good credit score – having no debt is just one factor
‘Can I improve my score quickly?’
The good news is that you CAN always improve your credit score. The bad news – it’s not a quick process.
So, how can you improve it?
Improving Your Credit Score: Dos and Don’ts
Do: Pay everything on time.
This can include existing loans, rent, payment plans, bills, subscriptions, court actions and fines.
Utilise direct debit, paying upfront and calendar reminders to make sure you never miss a payment.
Do: Build genuine savings.
To build genuine savings, you need proof that you’ve saved for at least three months.
This is especially important when you’re looking to buy in the short to medium term.
This will show the lender that you can manage your expenses well and build wealth whilst doing so. It also gives you a buffer to ensure you don’t fall behind on any bills or payments, even when there’s an emergency.
Utilise high-interest savings accounts, investments and offset accounts to build these savings.
Do: Ask for help if you need it.
Here are some resources you can tap into to get help if you’re experiencing financial hardship:
- Financial hardship help – yes it goes on your record, but it’s always better to deal with the problem than leave it.
- A financial advisor or accountant – they can help with cash flow management, debtor management and budgeting to get you back on track.
- A mortgage broker – they can assist with refinancing existing loans and finding suitable options for a new loan.
- The Australian Taxation Office (ATO) – they can provide a payment plan for any tax debt.
Don’t: Buy Now and Pay Later (BNPL)
Spending money that you don’t have by utilising the abundance of BNPL schemes like Afterpay, puts you at risk of a lower credit score.
BNPL platforms promote spending beyond your means, which will have a negative impact on your borrowing power. Most lenders will assume that you can’t afford to take out a loan and make the repayments, especially if you’re using Afterpay for necessity items.
Missing payments on these platforms will also leave a mark on your credit report. Solely having the platform can stay on your credit report, even if you haven’t used it or have paid everything off.
Find out more about the risks of Afterpay here.
Don’t: Get comfortable with debt.
High balances on credit cards and/or loans can negatively impact your credit score. So too can regularly applying for lots of new credit.
It’s important to keep chipping away at any outstanding debt you have so that your credit score can continue to improve.
Note: Don’t ignore or put off paying tax debt and HELP debt, and make extra repayments towards your loan whenever you can.
Maintaining a good credit score helps you access better rates and increases your borrowing power. Even small steps, paying bills on time and reducing debt, can make a big difference over time.
If you have questions or want help reviewing your options, our Aintree Group Wealth team is here to help.
This is general advice only and has not been prepared with your situation and needs in mind. For individual and personalised advice, we highly recommend that you seek out proper professional advice from your financial adviser.
