Credit Scores Explained
What is a credit score and how does it affect my home loan application?
By Andrew, franklenn FINANCE 6 min readUpdated 3 November 2026
The short answer
A credit score is a number that sums up how reliably you have handled credit, based on your credit report. In Australia, credit bureaus such as Equifax, Experian and illion each calculate their own score. Lenders use your score and report, along with income and expenses, to decide whether to lend and sometimes at what rate. Paying bills on time, limiting new applications and keeping credit limits sensible are the most reliable ways to keep it healthy.
Detailed explanation
What is in your credit report
Your credit report is a record of your credit history. It lists the credit accounts you hold, the limits, any credit enquiries you have made, and your repayment history for the past two years under Australia's comprehensive credit reporting system.
It also shows defaults, court judgments and bankruptcies. A default can stay on your file for five years, even after you pay it off.
- Credit cards, personal loans, car loans and home loans
- Buy now, pay later accounts with some providers
- Repayment history, including late payments
- Credit enquiries and applications
- Defaults, judgments and insolvency records
How credit scores work
Each bureau uses its own scale. Equifax uses 0 to 1,200, while Experian and illion use 0 to 1,000. A higher score means lower risk in the bureau's view. Because the scales differ, a score from one bureau cannot be compared directly with another.
Lenders often also run their own internal scoring, combining your credit report with the details in your application. So your score is important, but it is one piece of a bigger picture.
In practice, a strong score will not get you approved if your income cannot support the loan, and a lower score does not always mean a decline. What matters is how your whole application looks to the lender you choose.
What helps and what hurts
The biggest factor is paying on time, every time. Missing even one repayment by more than 14 days can show up on your report. Lots of credit applications in a short time can also lower your score, because it can look like you are under financial pressure.
Comprehensive credit reporting also means positive information counts. A history of on-time repayments on a car loan or credit card can help your score over time, which is good news for people rebuilding after a rough patch.
- Helps: on-time repayments, a steady credit history, few recent applications
- Hurts: late payments, defaults, many enquiries in a short time
- Neutral: checking your own credit report
Credit limits and borrowing capacity
Separately from your score, credit cards affect how much you can borrow. Lenders usually assume you will pay around 3% to 3.8% of the full limit every month, even if the balance is zero. A large unused limit can quietly reduce your borrowing capacity.
Reducing limits or closing cards you do not need before applying is one of the simplest things you can do.
Buy now, pay later accounts and store cards are treated in a similar way by many lenders. Even small accounts can add up, and lenders will ask you to disclose them, so it is worth tidying them up well before you apply.
Fixing errors on your report
You can get a free copy of your credit report from each bureau, and it is worth checking all three. If you find an error, such as a default that is not yours, you can ask the bureau or the credit provider to correct it at no cost.
Be wary of paid credit repair companies that promise to remove legitimate listings. Accurate information generally cannot be removed early.
Worked example
How a credit card limit affects borrowing capacity
Here is an illustrative example of a borrower reducing a $15,000 credit card limit to $3,000 before applying. It assumes the lender counts 3.8% of the limit each month and assesses loans at 8.89% p.a. over 30 years. Policies vary by lender.
| Assessed monthly commitment on $15,000 limit | $570 |
| Assessed monthly commitment on $3,000 limit | $114 |
| Monthly commitment freed up | $456 |
| Loan that $456 a month supports at 8.89% over 30 years | About $57,235 |
In this example, simply lowering the credit card limit could lift borrowing capacity by roughly $57,000, without any change to the borrower's credit score, income or spending.
Illustrative only. Figures are examples, not a quote or a recommendation.
Common mistakes
- Applying for several credit cards or loans just before a home loan application
- Ignoring small bills, such as a phone or utility account, that can become defaults
- Keeping high credit card limits you never use
- Paying a credit repair company to remove accurate listings
- Never checking your credit report and missing errors that could be fixed for free
Frequently asked questions
Next steps
Talk to franklenn FINANCE
Worried about your credit history or not sure where you stand? Book a free discovery call with franklenn FINANCE and we will talk through your options frankly.
This guide is general information only and does not consider your objectives, financial situation or needs. It is not financial, tax or legal advice. Lender policies, rates and government schemes change. Please speak with us, and with your accountant or solicitor where relevant, before acting.