10 Factors That Affect Your Credit Score in Australia

Credit scores, the numerical expression of your creditworthiness, can make or break your mortgage application. They can determine whether you’re eligible for that attractive interest rate or premium credit card. In short, a good credit score can pave the way for numerous financial advantages.

So, what affects your credit score in Australia? In this article, we explore 10 factors that affect your credit score. We dive into how each component plays its part in shaping your credit score.

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10 Factors That Affect Your Credit Score in Australia

1. Payment History: Your Record of Responsibility

One of the biggest influences on your credit score is your payment history. Whether it’s your credit card bill, utility payments, or even rent in some cases, late or missed payments can severely impact your credit rating.

Pro Tip: Automated payment systems are your best friend. They can help ensure timely payments and reduce the risk of negative impacts on your score.

2. Credit Utilisation: The Balance between Debt and Credit

Credit utilisation refers to the percentage of your total credit limit that you use. Maintaining a lower credit utilisation rate can have a positive effect on your credit score.

Pro Tip: Try to keep your credit utilisation below 30%. This shows lenders you’re not reliant on borrowed money.

3. Length of Credit History: The Older, The Better

The age of your credit history also plays a significant role in determining your credit score. A longer credit history provides more data for lenders to assess your creditworthiness.

4. Credit Inquiries: Be Careful of 'Hard Checks'

‘Hard checks’ occur when a lender checks your credit as part of a loan or credit card application process. They can lower your score, especially if you have multiple checks within a short period.

Pro Tip: To minimise hard checks, only apply for new credit when necessary.

5. Credit Mix: Diversification is Key

Having a mix of different credit types (credit cards, auto loans, mortgages) can be beneficial to your credit score. It demonstrates your ability to manage different forms of credit.

6. Bank Account Behaviour: Opening and Closing Accounts

Contrary to some beliefs, opening and closing bank accounts in Australia does not directly impact your credit score. However, it can indirectly influence your score through associated credit inquiries or new lines of credit.

7. Savings Account Withdrawals: Does It Affect My Score?

Withdrawing money from your savings account won’t directly affect your credit score. However, maintaining a healthy savings account may improve your chances of securing a loan, affecting your score in the long run.

8. Rejections for Loans and Your Credit

Each loan application can result in a hard check, potentially lowering your score. Therefore, multiple rejections can indirectly lead to a lower score due to repeated checks.

9. Payment Plans and Your Credit Score

Entering a payment plan can indicate financial distress, which might affect your credit score. However, successfully completing a payment plan can reflect positively.

10. Credit Scores: Knowing and Improving Yours

Now that you’re armed with knowledge about what affects your credit score, it’s time to find out your score. You can get your credit score for free in Australia from various credit reporting agencies.

Understanding your score is just the first step. Aim to improve and maintain it. Remember, a good credit score can open doors to more favourable loan conditions and better interest rates.

Pro Tip: Regularly monitor your score to stay on top of your financial health.

What does not affect your credit score?

While there are many factors that can influence your credit score, there are also several aspects that won’t have an impact. Here are some commonly misconstrued factors that do not affect your credit score:

  • Your Income: While lenders may consider your income when deciding whether to lend to you, your income doesn’t directly impact your credit score.
  • Your Savings: The amount of money you have in your savings account doesn’t factor into your credit score.
  • Your Job or Occupation: Your employment status or occupation is not a factor in calculating your credit score.
  • Your Education: Your educational background does not affect your credit score.
  • Your Age: Age isn’t a direct factor in your credit score. However, length of credit history, which can be related to age, does matter.
  • Where You Live: Your physical location or address doesn’t affect your credit score.
  • Checking Your Credit Report: This is a ‘soft check’ and doesn’t affect your score like ‘hard checks’ do.
  • Opening and Closing Bank Accounts: These actions don’t directly impact your credit score, although associated factors could have an indirect effect.
  • Interest Rates on Your Debt: The rates on your existing loans or credit cards do not affect your credit score.
  • Taking Money Out of Savings: Withdrawing money from your savings account does not directly affect your credit score.
  • Inheriting Money: Receiving an inheritance does not affect your credit score. However, how you use that money could indirectly influence your score.
  • Rent Payments: As of 2023, rent payments are not typically reported to the credit bureaus in Australia, so they do not usually affect your credit score.

Wrapping up

Understanding what affects your credit score in Australia is critical, particularly for expats and foreign buyers eyeing the Australian property market. Remember, the journey to a great credit score starts with knowledge and conscious financial habits.

Odin Mortgage is the leading mortgage broker for Australian expats and foreign buyers. We have a team of experienced mortgage professionals who can help you understand your options and find the best loan for your needs.

Contact us today to learn more about how we can help you get approved for a home loan.

Get a free Australian mortgage assessment today.

Apply online to get a free recommendation with real rates and repayments.

Frequently asked questions

A good credit score in Australia ranges from 622 to 725 on a scale from 1 to 1,200, depending on the credit bureau.

You can check your credit score for free through various credit reporting agencies in Australia.

Credit scores are typically updated every 30 days. However, the specific timing can vary based on the reporting agency and when your lenders report your activity.

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