How To Build A Good Credit Score In Australia
In Australia, your credit score plays an important role in how banks and financial institutions decide whether to approve a new line of credit, such as a loan, credit card or overdraft.
Credit reporting agencies such as Equifax, Experian, and Illion assign you a credit score between 0 and 1200, which utilities providers and lenders will refer to as part of their responsible lending obligations when assessing whether you qualify for a new service or loan. In this guide, we’ll explore how credit scores are calculated, what factors influence them, and practical steps you can take to build or rebuild a strong credit score.
Overview
What Determines Your Credit Score?
In Australia, your credit score is a number between 0 and 1,200 (depending on the credit reporting agency used) that is used to reflect how much risk you present as a borrower. The higher your score, the less risk you present and the more likely you are to be approved for loans, credit cards or any future credit applications.
There are multiple tiers of credit scores, such as:
Below Average (0-459)
Average (460-660)
Good (661-734)
Very Good (735-852)
Excellent (853-1200)
Some factors that impact your credit score include:
Repayment history: Consistently paying your bills and loans on time helps build a strong credit score. However, missed or late payments can stay on your report for years and lower your score.
Credit Utilisation: Using a small portion of your available credit, ideally under 30 percent, shows responsible credit use. High utilisation can suggest financial strain and negatively affect your score.
Types of Credit: A mix of credit types, like a credit card and a personal loan, shows you can manage different commitments. Relying too heavily on one type may work against your score.
Credit Enquiries: A few credit enquiries over time have little effect. Multiple applications in a short period can be seen as a sign of financial pressure and may reduce your score.
Defaults or Bankruptcies: Defaults and bankruptcies can damage your credit score and can remain on your file for several years. Recovery is possible through consistent, positive credit behaviour over time.
4 Strategies To Build Your Credit Score
Building a good credit score in Australia does not have to be complicated, but it does require consistency, time, creating the right habits, and living within your means.
Whether you are starting to build or rebuild your credit score, understanding how credit scores work, how credit scores are calculated, and some strategies that can help you is the first step to getting in control of your credit.
1. Always Pay Bills On Time
Whether you pay bills on time can have a significant impact on your credit score. Your payment history is considered when you apply for any new line of credit, so making payments on time should be a top priority.
Paying your bills on time shows a lender that you are more likely to meet future payments on time. Missed or late payments can hurt your credit score, and consistent missed payments indicate a risk of default on any new line of credit
One late payment can hurt your credit score, once it is more than 14 days overdue. If you have an overdue payment that is 60 days late and the amount owed is $150 or more, it could be listed as a default. A default will remain on your credit file for five years, and lowers your credit score.
Consider creating a payment calendar that helps you identify exactly when your bill payments are due. Find out if your bank offers scheduled or direct debit payments for your bills and align direct debits with your pay cycle.
If you do think you might miss a payment, it is important to contact your creditor early to work out a solution. It is much better to arrange a payment plan or hardship variation than to let the bill go unpaid and risk hurting your credit score.
2. Keep Credit Card Balances As Low As Possible
Having available credit that is not being used shows lenders that you do not rely on having maxed-out credit cards and overcommitting your finances. The lower your rolling credit balance is, the less risk you present to lenders assessing your credit application.
Aim to keep your credit balances low, ideally below 30% of your credit limit, to signal that you are not overly reliant on credit and can manage your existing debt responsibly. For example, if you had an available credit balance of $5,000, then staying around $1,500 (30% of your limit) is ideal. Whereas, consistently owing $4,000 (80% of your limit) could start to impact your borrower risk assessment.
Sitting close to your credit limits or maxing out your credit cards tells lenders that you may be under financial pressure.
3. Avoid Applying For Too Much Credit Too Often
Every time you apply for a loan, credit card or a mobile phone plan, , a hard enquiry is recorded on your credit file. Applying for too much credit in a short time period can lower your score.
In Australia, hard enquiries occur not only for personal loans and credit cards but also for some mobile phone contracts, electricity accounts and even “buy now pay later” services. It is important to pace yourself when considering taking out a loan and to only apply for a loan that you can afford to meet the repayments for.
Each application that you submit is recorded and forms part of your credit report. Making numerous applications within a short period can be considered negative for some lenders and can be seen as credit stress.
4. Monitor Your Credit Report For Any Changes
When you are trying to build your credit score, it is important to understand your score before you begin rebuilding it and monitoring your progress. Checking your credit report does not affect your credit score because it is recorded as a “soft enquiry”.
In Australia, you can access your credit report for free once every three months from the three main reporting bodies, who will provide it within 10 days. Once you have received your credit report, it is important to verify that all of the accounts and loans listed are yours and that there are no mistakes in your details.
FAQ
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Building your credit score takes time, persistence and consistency. While there is no fast approach to building your credit score overnight, you can take the following steps to begin improving your credit score:
Make your bill/loan repayments on time.
Pay down your existing credit account balances.
Diversify the types of credit you have, and include property loans if possible.
Limit how many credit applications you apply for in a short time.
Keep your credit utilisation low.
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When you apply for credit, your repayment history is reviewed to determine your reliability when paying bills. If you miss a payment, it will stay on your report and can impact your ability to take out credit in the future. The fastest way to build your credit is to pay your bills on time and show consistent repayments.
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A credit score of 800 is a good credit score and is considered low risk for lenders. To build your credit score to 800, you can:
Meet your bill repayments on time.
Pay off existing debts
Have a mix of different types of credit.
Reduce and lower your credit utilisation.
The content in this blog is intended for general informational purposes only and does not take into account your specific financial goals, circumstances, or needs. While we strive to provide accurate and relevant information, it should not be construed as financial, investment, or professional advice.
Before making any financial decisions or taking action based on the information provided, we encourage you to evaluate its relevance to your individual situation. Broken Hill Bank recommends consulting with a financial professional for advice, you can contact us directly to discuss your unique situation and receive tailored guidance.