What credit score do I need to get a home loan in Australia?

Key facts

• Your credit score showcases your history and risk as a borrower.
• Credit scores are an important part of your home loan application.
• It's possible to increase your credit score.

When you apply for a home loan, one of the many things lenders will examine is your credit score. This is a number between 0 and either 1,000 or 1,200 which reflects how responsible you are with your debts and other financial obligations.

For lenders, your credit score is an important measure of how much risk you pose as a borrower. Low credit scores look like a home loan red flag.

While your credit score is not the end-all-be-all of your home loan application, it can be a deciding factor in whether or not a bank grants you a mortgage. This is true whether it's your first home loan or if you're refinancing.

So let's break down how to check, understand, and if necessary, improve your credit score for your mortgage application.

Credit reporting bodies use a number of factors to determine how you handle financial obligations. For example, most use some variation of the following:

• How many credit accounts you have.
• What types of accounts you have.
• Your credit limits.
• How much credit you use.
• How long your credit history is.
• Your payment history, i.e. how timely and complete your repayments have been.

Different credit bodies will give each factor different weigh when calculating your credit score. 

There are a number of credit reporting agencies in Australia. The three main ones are Equifax, Experian, and Illion.

You can request a free credit report from these agencies once every three months, or within 90 days of being denied a home loan.

The minimum credit score a home loan lender will like to see when reviewing your mortgage application will vary. To put yourself in the best possible position ahead of time, it can be helpful to understand what is generally considered a good credit score.

The table above lays out the ranking systems used by Equifax, Experian and Illion. Note that Equifax extends their credit scores out to 1,200, while Experian and Illion only go up to 1,000.

Generally, a ‘good’ score will be considered satisfactory by most lenders. Borrowers who score in this range will have a decent track record of repaying their debts, though their file might contain the occasional minor slip-up or credit enquiry.

A ‘low’ credit score suggests you’ve defaulted on a loan before or have been too reckless in your applications for credit.

Meanwhile, an ‘excellent’ score tells lenders you have a long history of making repayments on-time and are generally quite disciplined when it comes to taking out credit.

While a good credit score can improve your chances of getting a home loan, by itself it’s no guarantee that your home loan application will get over the line.

Lenders will also consider:

• Your income.
• Your spending habits.
• Your employment history.
• The size of your home loan deposit.
• The loan amount you wish to borrow.
• Whether you have dependents.
• Whether you have other debts, like HECS-HELP loan debt.

Low-risk borrowers are good for business, which is why many banks and lenders offer discounted home loan interest rates to reel them in.

That said, banks typically hand out discounts based on loan-to-value ratio (LVR). Lower LVRs get lower interest rates. 

As long as you pass the mortgage serviceability and assessment process, you’ll get the interest rate you qualify for — regardless of your credit score.

The good thing about credit scores is they aren’t set in stone — they can move up and down over time as your financial habits change. That means there are steps you can take to increase your credit score if a lender deems it too low.

1. Check your credit report for mistakes

For starters, you should request a copy of your credit report to check for any errors or inaccuracies. You might find issues that have long been resolved are still listed, in which case you’ll need to contact your bank or utility company to set the record straight.

2. Pay your bills on time

Secondly, you’ll need to commit to paying all of your bills on time, including credit cards, personal loans, and utilities like energy.

According to Equifax, any unpaid bills that result in a default will be listed on your credit file for five years, so consider setting reminders and activating direct debit where you can.

3. Set spending limits on your credit card

Racking up debt on your credit card and not paying it off in time can be a surefire way to jeopardise your credit score. If possible, lower your credit card limit, close any cards you don’t need, and try to keep your credit utilisation below 30% at all times.

4. Tackle any existing debt

If you have any outstanding debts, try to get on top of them. If you’re able, pay more than the minimum amount due each month, and focus on paying off high-interest debt first to keep it from snowballing.

5. Don’t apply for credit products you don’t need

Try to keep applications for new credit products to a minimum. Not only does a new credit source lead to more debt, applying for too many over a short span of time can give lenders the impression that you’re having financial difficulties and desperately need credit. No one likes a desperate borrower.

Once your credit score is up to snuff, you can kick off your search for a home loan.

Visit our home loan comparison page for an overview of lender offers, or browse the selection below.