What credit score do I need for a home loan in Australia?

Your credit score is based on your history of borrowing and repaying money, which is reported to credit bureaus around Australia when you apply for loans, credit cards, or even services and utilities like phone plans or electricity or gas accounts. These credit bureaus tally up the good and bad credit events and use this credit history to give you a score.

Your credit score indicates your creditworthiness as a borrower to lenders. If you’ve borrowed and repaid money on time in the past, you’re more likely to have a higher credit score, while if you’ve missed repayments or defaulted on loans, you may have bad credit. 

Creditors use credit scores as a shortcut method to get an idea of which applicants are more likely to repay their debts on time, and which ones are more likely to miss repayments or default on loans. 

Source: Experian.com.au, Equifax.com.au.

Different mortgage lenders use credit scores in their application processes in slightly different ways. While the exact details of most mortgage application processes are kept confidential, mortgage applicants with good credit may find that their applications can be processed faster and more smoothly, as the lender may not need to confirm that a borrower’s finances check out.

But if you have bad credit, a lender may have more questions about your creditworthiness. They may want to conduct extra checks or get extra documentation to help prove that you can afford the loan. This could mean your home loan application will take longer to receive approval, and you may have to pay a higher interest rate.

To get a better idea of how lenders see you, you can check your credit scores for free.

It’s important to remember that a mortgage is a type of secured loan, a bit like a secured car loan, where the value of the property being purchased guarantees the money being borrowed. Because this helps to lower a lender’s risk, even borrowers with credit scores on the low side may get a home loan provided they can reduce the lender’s risk in other ways. 

Some of the ways to help improve your home loan application’s chance of approval include:

• Pay a high deposit (20% or more of the property’s value)
• Have a high income and low expenses, backed up by payslips and bank statements
• Earn a steady income from a job you’ve held for a long time, preferably in and industry that you’re familiar with
• Work in an in-demand professional area, such a medicine, law, or engineering

As well as this, you could try to spend some time actively making improvements to your credit score though positive credit behaviours, like paying bills on time.