Personal Finance
Your Credit Score: What Lenders Look At, and How to Improve It Before You Apply
Lenders read your credit score to set approval odds, rates and deposit. Here is what each band means and the steps that lift a score before you apply.
Your credit score is a summary, not a verdict. It is one number produced from your credit report, and lenders weigh it alongside your income, your deposit, your living expenses and the loan itself when they decide whether to approve an application and at what rate.
That is the useful way to think about it: the score is the part of the application you can improve in advance, and once you understand how it is calculated, the improvements are straightforward.
What a Credit Score Actually Is
A credit score is a number representing the risk a lender takes in lending to you, calculated from the information in your credit report. In Australia there is no single national score. Each credit bureau keeps its own file and calculates its own score on its own scale: Equifax scores from 0 to 1,200, while Experian and illion use 0 to 1,000.
Two practical points follow. A score only means something alongside the scale and the bureau it came from, and a figure from one bureau is not directly comparable with a figure from another.
What Is in Your Credit Report
The report behind the score records how you have managed credit. It includes:
- Loans and credit accounts, open and closed
- Your repayment history, including late payments
- Credit enquiries, meaning applications you have made
- Defaults, court judgments and bankruptcies
What Lenders Look At
| Factor | What it covers | Weight in the decision |
|---|---|---|
| Repayment history | Whether loans and cards have been paid on time | The single biggest factor |
| Existing debts and limits | How much you owe and how much credit you could draw | Significant |
| New enquiries | How many applications you have made recently | A smaller effect, but repeated applications add up |
| Defaults and judgments | Missed payments, court judgments, bankruptcies | Major negative listings |
| Length of credit history | How long your accounts have been active | A supporting factor |
Lenders also apply their own rules beyond the score, including income, employment stability, living expenses and the size of the deposit.
How Your Score Affects a Loan
Approval. A higher score improves your chances and can open up lenders who do not advertise to lower-scoring applicants. A lower score does not automatically mean rejection, but it narrows the field.
Interest rate. The rate is where the score costs or saves real money. A lower-risk file is offered lower rates, and over a loan of several years that difference compounds.
Loan amount and term. A strong file can support a larger amount and more flexible terms. A weaker file tends to mean a smaller amount, a shorter term, or a requirement for a guarantor or co-borrower.
Deposit. Applicants with lower scores are often asked for a larger deposit, which raises the upfront cost.
How to Improve Your Score Before You Apply
- Check your report. Get your free report from each bureau and dispute anything that is wrong. Errors are corrected, not lived with.
- Pay everything on time. Repayment history carries the most weight, and a missed payment sits in that history for two years.
- Reduce what you owe. Lower card balances and fewer open lines of credit improve how the file reads.
- Limit new applications. Each application leaves an enquiry, so space them out and avoid applying just to see what happens.
- Keep old accounts open once they are in good standing. A longer history of steady repayment helps.
Comparing Loans Yourself
If you are comparing options yourself, these are the terms that decide the real cost:
- Comparison rate. It folds most fees and charges into one figure alongside the interest rate, which makes it the fairest single number to compare. Check the assumptions behind it, because it is calculated on a set loan size and term.
- Secured or unsecured. A secured loan, usually against the vehicle, carries a lower rate because the lender can recover the asset. An unsecured loan costs more and is harder to obtain with a lower score.
- Term. Stretching repayments lowers the monthly figure and raises the total interest paid.
- Fees. Establishment fees, monthly or annual fees, and early payout or exit fees. A low rate with a large exit fee is a trap if you plan to refinance or sell.
- Balloon or residual payments. Some loans defer a lump sum to the end of the term, which lowers the monthly repayment and leaves a large amount owing at the finish.
- Fixed or variable. Fixed gives certainty; variable can be cheaper over time but moves with interest rates.
Get two or three written quotes and compare them on the comparison rate and the total cost over the term, not the advertised headline rate.
Fix the File, Then Compare the Offers
Your credit score is one input among several, but it is the one you can deliberately improve before you apply. Check the report for errors, fix the repayment habits, reduce what you owe, and space out your applications. Then compare the offers on the comparison rate and the total cost, because the cheapest headline rate is rarely the cheapest loan.
Sources: Equifax, Experian and illion consumer credit information pages; ASIC Moneysmart, credit and loans guidance.