When it comes to borrowing money, such as applying for a home loan, car finance, or even a credit card, your credit score plays a big role in whether you get approved. But while many Australians know they have a credit score, fewer actually understand what it is, how it’s calculated, or how to improve it. The good news is that if your credit score isn’t looking too healthy, there are a few simple steps you can take to boost and maintain your score over time.
What is a credit score?
A credit score is a number between 0 and 1,200 that represents how reliable you are when it comes to borrowing and repaying money. Lenders use it to help decide whether you’re likely to pay back a loan on time. The higher your score, the lower the risk you appear to be.
In Australia, your score is calculated by credit reporting agencies like Equifax, Experian, and illion. They collect information from banks, utility companies, and other providers about your repayment history, credit applications, and overall financial behaviour.
Your score usually falls into one of five categories:
- Excellent: 800–1000 or 1,200 (depending on the credit reporting agency)
- Very good: 700–799
- Good: 600–699
- Average: 500–599
- Below average: 0–499
Why is your credit score important?
Your credit score matters because it can directly affect:
- Loan approvals: Lenders often check your score before approving applications.
- Interest rates: A higher score may help you secure lower interest rates, saving you money over time.
- Borrowing power: A good score can make it easier to access higher amounts of credit if needed.
- Everyday services: Even phone plans, electricity, and internet providers may check your score before signing you up.
In short, a strong credit score gives you more financial flexibility.
Why might a credit score be low?
According to moneysmart.gov.au, there are a few reasons your score could be sitting on the lower side:
- Missed or late repayments: Even one missed bill can have a negative impact.
- Too many credit applications: Every time you apply for a loan, credit card, or store finance, it’s recorded on your file. Lots of applications in a short time can raise red flags.
- High levels of debt: If you’re carrying large balances on credit cards or personal loans, your score may take a hit.
- High credit card limits: Even if you don’t use the full amount, lenders consider your approved credit limit as potential debt. Having a limit that’s much higher than you realistically need can reduce your borrowing capacity and hurt your credit score.
- Limited credit history: If you’ve never borrowed before, there may not be enough information for lenders to assess you, which can keep your score lower.
Simple steps to improve your credit score
The good news is that your score isn’t set in stone. With a few smart habits, you can gradually improve and maintain it. Here’s how:
1. Pay bills on time
Your repayment history makes up a large part of your credit score, so paying bills late, even once, can leave a mark. This includes not just loans and credit cards, but also everyday bills like phone, internet, and electricity if they end up unpaid and reported. Setting up direct debits or calendar reminders can help make sure nothing slips through the cracks. If you know you’ll struggle to pay on time, reach out to your provider early as many offer hardship programs that can prevent missed payments from being recorded.
2. Keep credit applications to a minimum
Every time you apply for credit, whether it’s a personal loan, car finance, or even a store card, it’s recorded on your file. Too many applications in a short space of time can make lenders think you’re under financial stress. Instead of applying for multiple options at once, do your research first and only submit applications where you’re confident of being approved.
3. Reduce existing debts
If you’re carrying high-interest debt, focus on paying it down as quickly as possible. Even small, regular repayments above the minimum can make a big difference over time and will not only improve your score, but will also save you money on interest.
4. Check your credit report regularly
Mistakes happen and sometimes credit reports contain errors, such as accounts that don’t belong to you, or debts that you’ve already paid off. You’re entitled to a free copy of your report each year from agencies like Equifax, Experian, and illion and checking your report means you can spot issues early and request corrections. It’s also a good way to make sure you haven’t been a victim of fraud or identity theft.
5. Use and maintain credit responsibly
The length of your credit history is part of what makes up your score and lenders want to see how you’ve managed money over time. Keeping a credit account open over a period of time, such as a low rate and low fee credit card, can work in your favour when you keep the balance low and continue to pay it off in full.
Learn more about our Low Rate Visa Credit Card.
6. Set up an emergency fund
Many people run into credit trouble when unexpected expenses pop up and they don’t have savings to fall back on. This often leads to taking on more debt and possible missed or late repayments. By setting aside even a small amount regularly into an emergency fund, you can create a buffer that helps you stay on top of your commitments. Even a few hundred dollars tucked away can protect your credit score in tough times.
How long does it take to see improvement?
There’s no overnight fix for a credit score and improvements depend on your personal circumstances and the issues dragging your score down. For example, missed repayments may stay on your report for up to two years, while defaults can last for up to five.
That said, positive behaviours like paying on time and reducing debt can start making a difference within a few months. The key is consistency, building good habits and sticking with them.
Once you’ve boosted your score, it’s important to keep it there. A strong score is all about consistent financial responsibility - paying bills on time, avoiding unnecessary debt, and checking your report regularly. Think of it like maintaining your health in that small, ongoing efforts are far more effective than one-off fixes.
This is not an offer to lend – approval is subject to credit assessment criteria. Terms, conditions, fees and charges apply – full details on application. This information provides general advice only. We do not provide advice about this product based on any consideration of your personal objectives, needs or circumstances.
