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What is a Credit Score?

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Smart Booster Home Loan

The Smart Booster Home Loan is our low rate home loan which allows you to boost your savings, build your equity and own your own home, sooner.

  • 2.60%
    discount var rate p.a.~
  • 2.96%
    comparison rate p.a.*

From paying rent, purchasing a car, home or even taking a holiday, credit forms a big part of our everyday and financial lives. However, when it comes to giving you credit, companies need to make sure you’re in good financial shape and you won’t struggle to repay them.

What is a credit score?

Institutions that lend money such as banks, credit card providers, mortgage lenders, and finance companies use credit scores or a credit rating as a way to assess the credit worthiness of a person.

As a rule of thumb, your credit score is based on your borrowing and repayment history – and includes how often you’ve shopped around for credit too. A credit score evaluates whether the borrower can afford a loan, the likelihood of them paying back a loan, and it can also determine their interest rate, and their credit limit.

Lenders will use this rating, alongside their own risk criteria, to decide whether to lend to you, how much and at what rate of interest.

What is a good credit score?

A credit score is a number that typically ranges from 0 to 1000 (or 1200 depending on the credit reporting agency). In general, the higher the score you get, the easier it is for you to qualify for a loan and even achieve a better interest rate. To determine your credit score, you will fall into five bands depending on your score, and again the reporting agency, which are:


The top 20% of borrowers, this group is seen as highly unlikely to have an event in the next 12 months which would prevent them from making repayments.

Very Good/Great

This group is seen as unlikely to find difficulty making repayments.


Missed repayments are less likely to occur.


It’s likely an event could occur which would cause missed repayments.

Below Average/Weak

The bottom 20% of borrowers, it’s seen as likely an event like bankruptcy or defaulting could occur in the next 12 months, causing missed payments.

How are credit scores calculated?

Lenders across Australia calculate your credit scores by using the information on your credit reports. These include: 

Your basic personal details

They will look into your age, the term of employment, address, previous address and driver’s license.

Type of credit providers you have used in the past

Each lender, bank or financial institution has different risk levels.

Credit enquiries you’ve made

Making multiple loan applications can lower your score.

Default information

Personal or business credit reports such as unpaid debt and serious credit infringements can affect your score negatively.

The amount of credit you have borrowed

Mortgages are seen as lower-risk than credit cards.

Bankruptcy history

Any debt agreement or personal insolvency issues relating to bankruptcy will bring your score down.

Repayment history

Consistent late or missed repayments will negatively impact your credit score.

There are websites that provide you with your credit scores for free such as Credit Savvy, however it’s important to note results may vary depending on which credit reporting agency is used.

How to improve your credit score 

Your credit score can change over time depending on the information contained in your credit report. It’s very important that you manage your finances well. There are some things you can do to make sure your score remains high.

  • Pay your mortgage and other loans on time
  • Pay unpaid credit card debt or loans
  • Limit your credit enquiries
  • Lower your credit card limits
  • Don’t apply for credit you don’t need and can’t pay for
  • Make your monthly repayments on time

Lenders decide if they will lend money to you based on your credit score. Knowing your credit score and maintaining a good reputation in your credit report can increase the possibility of getting any loans such as home loans, car loans and investment loans. 

Do pre-approvals affect your credit score?

In short, yes, pre-approvals can affect your credit score. There are two types of credit enquiries: hard and soft. A home loan pre-approval falls under a hard credit enquiry, which means its recorded on your credit file and affects your credit score. Other examples of hard credit enquiries include loan applications and credit card applications. Soft credit enquiries are credit checks you, an employer or an insurance company make and aren’t listed on your credit file, so won't affect your credit score.

One home loan pre-approval is unlikely to affect your credit score, and may even improve it. The problem arises when you apply for pre-approval with multiple lenders in a short amount of time. It’s recommended you shop around for the best loan, but this isn’t the case with pre-approval. Doing this indicates to a lender you’ve been rejected by other lenders and are trying to find one who will lend to you, and can also indicate that you may be in financial distress. This isn’t a good look and lenders may assess you as a risky borrower and won’t lend to you.

If you’re looking to discuss pre-approval for a home or car loan, chat to us today.

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How to improve your credit score if you don’t qualify for the amount you want

If you have a poor credit score and a lender won’t approve you for the amount you’re after, don’t fear! There are a number of ways you can improve your credit score which include:

  • Make credit card repayments on time, consistently
  • Pay all bills on time, consistently
  • Make any other loan repayments you might have, consistently
  • Lower your credit card limit or cancel your card entirely
  • Don’t max out credit cards
  • Don’t use payday loans
  • Don’t apply for too many loans or cards
  • Try and consolidate debts

The recent introduction of comprehensive credit reporting, which notes positive credit behaviour and not just negative, has made improving your credit score far easier. 

Want to find out your credit score? You can visit Credit Savvy to get your credit score for free, learn how to protect, improve and use your score to get better deals.

About the article

As Australia's leading online lender, has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.

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