Understanding what affects your credit score is an essential part of managing your personal finances. Whether you’re applying for a home loan, a car lease, or even a new mobile phone plan, your credit score plays a key role in determining your financial credibility. But what exactly goes into shaping this score, and how can you make sure you’re on the right track?
At Money101, we believe that building financial literacy is the foundation of long-term wellbeing. That’s why we’ve created this practical guide to help Australians navigate the key factors that influence their credit score – and what you can do to improve it.
Why Credit Scores Matter in Australia
Put simply, your credit score is used by lenders to assess your ability to repay debt. Credit scores range from 0 to 1200 (depending on the credit reporting agency), with higher scores reflecting stronger creditworthiness.
A good credit score can lead to more favourable loan terms, better interest rates, and a higher chance of approval when applying for credit. But to improve your credit score (or protect it) you first need to understand what impacts your credit score.
1. Your Repayment History
Your repayment behaviour is one of the most important factors that affect your credit score in Australia. Under Australia’s comprehensive credit reporting (CCR) system, both positive and negative payment information is recorded.
- Positive behaviour: Making payments on time (i.e. for credit cards, home loans, and even phone or utility bills) can improve your score over time.
- Negative behaviour: Missing payments by more than 14 days can be recorded in your repayment history, while payments overdue by 60 days or more on debts over $150 may be listed as a default on your credit file for up to five years.
2. Your Credit Utilisation Ratio
Even if you pay your bills on time, maxing out your credit cards each month can still hurt your score. Your credit utilisation ratio refers to how much of your available credit limit you’re using. A high utilisation rate may suggest that you’re overly reliant on credit and could pose a risk to lenders. As a general rule, try to keep your credit usage below 30% of your total available limit.
3. Number of Credit Applications
Every time you apply for a credit card, personal loan, or even a store finance deal, a hard inquiry is added to your credit report. Too many applications in a short space of time can signal financial stress and may reduce your score. To safeguard your rating:
- Avoid unnecessary credit applications.
- Compare loan products before applying.
- Space out credit enquiries where possible.
4. Defaults and Serious Credit Infringements
Defaults – where a debt of $150 or more is overdue by 60 days or longer – are serious red flags for lenders. These entries remain on your file for five years, even if you later repay the debt. Even more damaging are court judgements, bankruptcies, and serious credit infringements, which can significantly reduce your credit score and stay on your report for up to seven years.
5. Account Types and Credit Mix
A healthy mix of credit accounts like a mortgage, credit card, or car loan can help improve your score by demonstrating your ability to manage different types of credit responsibly. Having said that, this only helps if you’re managing them well – having too many open accounts or relying heavily on unsecured credit (like payday loans) may have the opposite effect.
6. Length of Credit History
A longer credit history allows lenders to better assess your financial behaviour over time. If you’re just starting out, building credit takes time – so start small, stay consistent, and be patient.
Take control of your financial wellbeing
Now that you have a clearer understanding of what affects your credit score in Australia, you can begin to take control of your financial future. Good credit habits (i.e. paying on time, keeping your credit usage low, and avoiding unnecessary applications) can gradually improve your rating and give you more flexibility when it matters most.
At Money101, we’re committed to helping Australians build strong financial foundations. Through our accessible and engaging financial wellbeing programs, we empower individuals and organisations with the knowledge and confidence to make smart money decisions. Whether you’re looking to improve your score, manage debt more effectively, or simply gain clarity around personal finances, Money101’s jargon-free financial literacy solutions are here to support your journey.
Explore our financial wellbeing programs or get in touch with the Money101 team today to find out how we can support your team or organisation.
