Does Your Credit Score Affect Your Home Loan Rate?

Yes, it can. Your credit score and history help decide whether a lender approves you, and with some lenders, the rate you pay. The good news is that most of it is in your control.

This page covers the first C of credit: Character. Lenders are really asking one question: who is going to be paying, and how have they handled money before? Read the full guide to the 4Cs.

How your credit history affects your rate

Lenders want to know you’re willing to repay. Your credit file is their best evidence.

Approval: a clean file makes you a fit for more lenders, including the ones with the sharpest rates.
Pricing: some lenders use risk-based pricing. A stronger score can mean a lower rate, and a weaker score a higher one.
Choice: with marks on your file, you may be limited to specialist lenders, who usually charge more.

What's actually on your credit report

In Australia, your credit report shows more than just problems. It includes:

Repayment history: whether you’ve paid loans and credit cards on time, month by month, for up to two years
Credit enquiries: each time you’ve applied for credit, including phone plans and buy now pay later
Current accounts: credit cards, car loans, personal loans and their limits
Defaults and court judgments: unpaid debts that have been reported
Personal details: your address and employment history, and company directorships

There are three main credit reporting bureaus: Equifax, Experian and illion. Each one may hold slightly different information and use a different scoring scale, so it’s worth checking all three.

It's the little things

Lenders notice small details that many people never think about:

Lots of recent enquiries. Several applications in a short time can look like you’re struggling to get credit.
A forgotten default. An old phone or utility bill can sit on your file for years.
Employment dates. Short stints or gaps can raise questions, so be ready to explain them.
Directorships. Old companies you were once a director of may still show up.
Unused credit. A card you never use still counts as debt you could draw on.

How to improve your credit file before you apply

Get your free reports. You can request a free copy from each bureau. Check every detail.
Fix mistakes. Contact the bureau or the credit provider. Correcting errors is free, so you don’t need to pay a credit repair company.
Pay every bill on time. Set up direct debits so nothing slips through.
Hold off on new credit. Avoid new cards, car loans or buy now pay later accounts in the months before you apply.
Close what you don’t need. Cancel unused cards and reduce limits.
Apply once, to the right lender. A broker can check which lenders suit your file before anything goes on your report.

What if your file isn't perfect?

You may still have options. Some lenders look past older or smaller issues if you can explain them and your recent history is clean. If you’re refinancing, sometimes the smarter move is to stay with your current lender and ask for a better rate while your file improves.

In our Credit Ready Check, this is the “willing to repay” side of the four-box grid. A strong file puts you in the Strong or Likely boxes. Marks on your file can put you in Vulnerable or Weak, and we’ll show you how to move up.

FAQs

What is a good credit score for a home loan in Australia?

It depends on the bureau, because each uses a different scale. As a rough guide, a score in the top half of the bureau’s range, with no defaults and few recent enquiries, puts you in a good position.

Does checking my own credit score lower it?

No. Checking your own report doesn’t count against you.

Does getting a home loan quote affect my credit score?

A general quote or a conversation with a broker doesn’t. A formal application to a lender usually does show as an enquiry.

How long do defaults stay on my file?

Most negative listings stay for up to five years, and some serious ones for longer. Paying a default doesn’t remove it, but it will show as paid.

Albert Waldron is a Credit Representative (407514) of Australian Finance Group Ltd, Australian Credit Licence 389087. This is general information only and does not take into account your personal circumstances. Please seek advice before acting. Credit Ready Check is a free lending review, not a credit repair service.