# How Credit Scores Actually Work (And What Affects Yours)
**Disclaimer: This article is for educational purposes only and does not constitute financial advice. Consult a qualified financial advisor for decisions about your personal finances.**
Your credit score affects whether you get approved for a home loan, what interest rate you pay, whether a landlord accepts your rental application, and sometimes even whether you get a phone contract. Yet most people have no idea what their score actually is, how it is calculated, or what moves the number up and down.
Let’s fix that.
## What Is a Credit Score?
A credit score is a number that represents how risky a lender considers you as a borrower. Higher score means lower risk, which means better loan terms and higher approval chances.
In Australia, there are three major credit reporting bureaus, and each uses a slightly different scoring range:
| Bureau | Score Range | Where “Good” Starts |
|——–|———–|——————-|
| Equifax | 0 – 1,200 | 622+ |
| Experian | 0 – 1,000 | 625+ |
| illion | 0 – 1,000 | 500+ |
These bureaus collect information about your credit history from lenders, utility providers, and public records, then run it through proprietary algorithms to generate your score.
Important: you do not have one single credit score. You have multiple scores across multiple bureaus, and they can differ. A lender might check one bureau or all three.
## What Goes Into Your Credit Score
Since Australia moved to Comprehensive Credit Reporting (CCR) in 2018, your credit report contains both positive and negative information. Here is what the bureaus consider, roughly in order of impact:
### 1. Repayment History (Highest Impact)
This is the single biggest factor. Do you pay your bills on time?
Every credit account you hold — credit cards, personal loans, home loans, phone contracts on a plan — reports your payment status monthly. Payments are recorded as on-time or late (14+ days overdue for some products, 30+ days for others).
A single late payment can drop your score by 50-100 points. A pattern of late payments is devastating. Conversely, 24+ months of perfect on-time payments is the strongest positive signal you can have.
**What to do:** Set up direct debits for at least the minimum payment on every credit account. Late payments are the most avoidable and most damaging factor.
### 2. Credit Enquiries (High Impact)
Every time you apply for credit — a loan, a credit card, a buy-now-pay-later account, or even a phone plan — the lender makes a “hard enquiry” on your credit file. Each enquiry is recorded and visible to other lenders.
One or two enquiries per year is normal. Five or six in a short period looks desperate, and lenders (and the scoring algorithm) treat it as a red flag.
**The damage is real:** Multiple credit applications within a few months can drop your score by 50-150 points, even if you were approved for all of them.
**What to do:** Only apply for credit you genuinely need and are confident you will be approved for. Use pre-qualification tools where available — these usually involve a “soft enquiry” that does not affect your score. Never apply to multiple lenders simultaneously to “see who gives the best rate.” Research first, apply once.
### 3. Credit Account History and Types (Moderate Impact)
The length and diversity of your credit history matters. A 10-year-old credit card with a clean repayment history is a strong positive signal. A brand-new credit file with one account opened last month gives the algorithm very little to work with.
The types of credit also matter. A mix of different account types (credit card, home loan, personal loan) is viewed more favourably than multiple accounts of the same type. This does not mean you should open unnecessary accounts — it means having a mortgage alongside a credit card is viewed positively.
### 4. Credit Utilisation (Moderate Impact)
This is the ratio of your credit card balance to your credit limit. If you have a $10,000 credit limit and consistently carry a $9,000 balance, your utilisation is 90% — which signals financial stress.
| Utilisation | Signal |
|————|——–|
| 0-30% | Healthy |
| 30-50% | Moderate |
| 50-75% | Concerning |
| 75%+ | High risk |
**What to do:** Keep credit card balances below 30% of the limit. If you routinely use more than that, either pay down the balance more frequently (mid-cycle payments) or request a limit increase (without increasing spending). Note: requesting a limit increase may trigger a hard enquiry, so ask your bank whether it will.
### 5. Defaults and Negative Events (Severe Impact)
Serious negative events have outsized impacts:
– **Default (60+ days overdue, $150+):** Stays on your report for 5 years. Can drop your score by 200-350 points.
– **Court judgment:** Stays for 5 years. Severely damaging.
– **Bankruptcy:** Stays for 5 years from the date you are discharged (which can be 7+ years from filing). Effectively tanks your score to near-zero.
– **Debt agreement (Part IX):** Stays for 5 years. Almost as bad as bankruptcy from a scoring perspective.
There is no quick fix for these. Time and consistent positive behaviour are the only remedies.
### 6. Available Credit (Lower Impact)
The total credit available to you (across all credit cards, personal loans, and lines of credit) is factored in, even if you are not using it. A $50,000 credit card limit — even with a zero balance — represents potential debt in the eyes of a lender assessing your borrowing capacity for a home loan.
**What to do:** Close credit cards you do not use and reduce limits on cards you do use to a level that matches your actual spending needs.
## How to Check Your Credit Score for Free
All three Australian credit bureaus are legally required to provide you with a free copy of your credit report once per year. You can also get free ongoing access through various services:
– **Equifax:** Free annual report via equifax.com.au
– **Experian:** Free ongoing score through CreditSavvy (now part of Experian)
– **illion:** Free annual report through creditcheck.illion.com.au
Checking your own credit score is a “soft enquiry” and does **not** affect your score. Check it. You need to know where you stand before you can improve.
## Common Credit Score Myths
**Myth: Checking your own score hurts it.**
Fact: Self-checks are soft enquiries and have zero impact.
**Myth: Closing old credit cards improves your score.**
Fact: It can actually hurt by reducing your average account age and increasing utilisation on remaining cards. Only close cards if the total available credit is causing problems with loan serviceability assessments.
**Myth: You need to carry a balance to build credit.**
Fact: You do not need to pay interest to build credit. Using a credit card regularly and paying the full balance by the due date each month builds a perfect repayment history without costing you a cent in interest.
**Myth: Paying cash for everything builds a great credit score.**
Fact: Paying cash builds no credit history at all. With no credit accounts reporting, the bureaus have nothing to score. Some credit activity — responsibly managed — is necessary to build a score.
**Myth: Your income affects your credit score.**
Fact: Income is not part of the credit score calculation. Lenders consider income separately in their assessment, but the score itself is purely based on credit behaviour.
## How to Improve Your Credit Score
The path to a better score is not exciting, but it is reliable:
1. **Pay every bill on time, every time.** Set up automatic payments. This alone is worth more than everything else combined.
2. **Reduce credit card balances below 30% of limits.** If you have a $5,000 limit, keep the balance under $1,500.
3. **Stop applying for new credit.** Every application creates an enquiry. Space applications at least 3-6 months apart.
4. **Keep old accounts open** (assuming no annual fees that are not worth paying). Account age helps.
5. **Check your report for errors.** Dispute any incorrect defaults, wrong addresses, or accounts that are not yours. Errors are more common than you would think.
6. **Wait.** Negative items age off your report after 5 years. A default from 4 years ago hurts less than one from 6 months ago.
## How Long Does It Take to Improve?
Realistic timelines:
– **Recovering from multiple enquiries:** 6-12 months of no new applications
– **Building a thin file (no credit history) to “good”:** 12-24 months of responsible credit use
– **Recovering from a default:** 2-5 years (it ages off at 5 years, but the impact diminishes over time)
– **Recovering from bankruptcy:** 5-7 years minimum
There are no shortcuts. Any service claiming to “fix” your credit score quickly is either removing legitimate negative items (which they will be re-added) or scamming you.
## Frequently Asked Questions
**Does buy-now-pay-later affect my credit score?**
Yes. Most BNPL providers now report to credit bureaus under CCR. Late BNPL payments appear on your credit report just like late credit card payments. The application also creates a credit enquiry.
**Does my partner’s credit score affect mine?**
Not directly. You each have separate credit files. However, if you apply for a joint loan, both scores are assessed. A partner with poor credit can affect joint applications.
**What score do I need for a home loan?**
There is no universal threshold — each lender has different criteria. Generally, an Equifax score above 700 is considered “very good” and gives you access to competitive rates. Below 500, you will struggle with mainstream lenders and may need to consider specialist lenders with higher rates.
**Understand your credit health** with our free Credit Score Explainer Guide: [Credit Score Guide →](#calculator-placeholder)
**Want a complete credit improvement action plan?** Our Credit Score Improvement Workbook walks you through every step: [Get it on Gumroad →](#gumroad-placeholder)
[Compare credit cards and their impact on your credit on Finder.com.au →](#finder-affiliate-placeholder)
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