Credit Scores & Personal Loans in Australia: How Your Score Impacts Your Rate

What is a credit score and how is it calculated in Australia?

A credit score is a number that summarises the information in your credit report. Lenders use it to assess how risky it might be to lend you money. In Australia, your credit score is calculated based on factors such as the amount you've borrowed, the number of credit applications you've made, and whether you pay your bills on time.

Each credit reporting agency in Australia has its own scale. Depending on the agency, your score will fall between zero and either 1,000 or 1,200. Your credit report also includes a credit rating – a band your score sits in, such as 'low', 'fair', 'good', 'very good', or 'excellent'.

• Your credit report lists personal information, credit products held in the last two years, repayment history, hardship information, defaults, credit applications, bankruptcy, debt agreements, and requests for your credit report.
• A higher credit score signals to lenders that you are less risky, which could mean you get a better deal and save money.
• A lower credit score can make it harder to get a loan or credit.

Sources: Moneysmart (Australian Securities and Investments Commission)

The main credit reporting bodies in Australia

• Equifax: Credit scores on a scale of 0 to 1200.
• Experian: Credit scores on a scale of 0 to 1000.
• illion: Credit scores on a scale of 0 to 1000 (as reported by one source).

Sources: Moneysmart (Australian Securities and Investments Commission), LoanOptions.ai

How credit scores affect personal loan eligibility

• The average credit score among personal loan borrowers in Australia is 782, according to lender Wisr.
• The overall average credit score in Australia is 855.

Sources: Moneysmart (Australian Securities and Investments Commission), Money.com.au, Mozo (publisher: Mozo Pty Ltd), LoanOptions.ai

How to check your credit score for free

You have a right to get a copy of your credit report for free every three months. In addition, some credit reporting agencies or online providers offer free access to your credit score.

Checking your own credit score is a 'soft enquiry' and does not affect your credit score. It is a sensible first step to understanding where you stand.

Sources: Moneysmart (Australian Securities and Investments Commission), Mozo (publisher: Mozo Pty Ltd)

Common factors that lower your credit score

Several factors can negatively affect your credit score. These include late or missed repayments, unpaid debts, many recent credit applications, defaults, and serious credit infringements. Defaults can be reported when an amount owed is $150 or more, the provider can't contact you, 60 days or more have passed since the due date, and you've been asked to pay.

A default generally stays on your credit report for five years, or seven years in the case of a clearout. Financial hardship arrangements do not affect your credit score.

• Late or missed repayments
• Unpaid debts
• Many recent credit applications (including personal loans, credit cards, and utilities)
• Defaults or serious credit infringements

Sources: Moneysmart (Australian Securities and Investments Commission)

Practical steps to improve your credit score

Improving your credit score takes time and consistent habits. Start by checking your credit report for errors – if you find any, you can ask the credit reporting body to fix them. Correct negative information cannot be removed by credit repair companies; they can only ask for removal of wrong information. You can do this yourself for free.

Other steps include paying your bills on time, reducing debts, and waiting before applying for new credit. Each application can leave a mark on your report, so space out your applications.

• Check your credit report for errors and dispute any mistakes.
• Pay your bills on time, including utilities, credit cards, and loans.
• Reduce existing debts where possible.
• Avoid making too many credit applications in a short period.

Sources: Moneysmart (Australian Securities and Investments Commission)

What to do if you have a low credit score but need a loan

You can also consider improving your score before applying, or look into loans specifically designed for people with bad credit, though these often carry higher costs.

• Focus on improving your score before applying – even a few months of on-time payments can help.
• If you're rejected, ask the lender why – they must tell you if it's due to your credit report.
• Be cautious of 'credit repair' services that promise to fix your score – they cannot remove correct negative information.

Sources: Moneysmart (Australian Securities and Investments Commission)