Credit Score

A credit score is a numerical representation of an individual’s creditworthiness, based on their credit history. In Australia, this score typically ranges between 0 and 1,200, depending on the credit reporting agency. The higher the credit score, the more creditworthy a person is considered, which can influence their ability to secure loans, credit cards, and other financial products.

Components of a credit score

Several factors contribute to calculating a credit score:

• Payment history: Whether you have paid your credit obligations on time. Late payments or defaults can negatively impact your score.
• Credit enquiries: The number of credit applications you’ve made. Frequent enquiries can lower your score.
• Credit usage: The amount of credit you’re using relative to your available credit limit.
• Length of credit history: The duration of your credit history. A longer history can positively influence your score.
• Types of credit: The mix of credit accounts you have, such as credit cards, personal loans, and mortgages.

Importance of a credit score

Access to credit

A higher credit score makes it easier to access credit products, such as loans, credit cards, and mortgages, often with more favourable terms. Lenders use your credit score to assess the risk of lending to you.

Interest rates

Your credit score can influence the interest rates you’re offered. A higher score can lead to lower interest rates, saving you money over the life of a loan.

Loan approvals

Lenders may set minimum credit score requirements for approving loans. A low credit score can result in denied applications or the need to provide additional documentation.

Financial stability

Maintaining a good credit score is essential for financial stability, as it reflects responsible borrowing and repayment behaviour. It can also affect your ability to rent a home, secure insurance, or even get a job in certain industries.

How to improve your credit score

Improving your credit score involves consistent and responsible financial behaviour:

• Pay bills on time: Ensure that all your credit obligations are paid by their due dates.
• Limit credit applications: Avoid making frequent credit enquiries, as this can lower your score.
• Reduce credit card balances: Keep your credit usage low relative to your credit limit.
• Check your credit report: Regularly review your credit report for any errors or inaccuracies and dispute them if necessary.

Credit score ranges in Australia

Credit scores in Australia are generally categorized into different ranges, which indicate your creditworthiness:

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

These ranges may vary slightly depending on the credit reporting agency, such as Equifax, Experian, or illion.

Credit scores in action

Credit score in action: Applying for a home loan

When applying for a home loan in Australia, your credit score plays a critical role in the lender’s decision. For instance, a high credit score of 800 or above may qualify you for a lower interest rate, resulting in significant savings over the life of the loan. Conversely, a lower credit score might lead to higher interest rates or the need for a larger deposit.

Learn more

Financial confidence comes with learning. Explore our Learning Centre and read these helpful blogs:

• How to improve your credit score before applying for a loan
• Understanding the impact of credit score on your borrowing power

Get started

At Funding, your credit score can play a role in the approval and terms of financial products like loans. Understanding and maintaining a healthy credit score can enhance your ability to secure the financial solutions you need. Whether you’re interested in a business loan or a building loan, having a strong credit score can make the process smoother and more advantageous.

Explore how Funding’s business loans and building loans can help you achieve your property ambitions.