- Learn what is considered an ‘excellent’ credit score and why it’s well rewarded.
- Understand how credit scores can affect home loan options and interest rates.
- Discover how to maintain an above-average credit score.
An excellent credit score is something not many can boast about having. It comes with a wider range of opportunities, and rightfully so. This is especially valid for applicants looking for a home loan since an excellent score can significantly improve your chances of being approved and help you get a low interest rate.
In this guide
Unloan Variable Home Loan (Owner)
Interest rate (p.a.)
Comp rate^ (p.a.)
- Get a rate discount every year.
- No application fees, no account fees, and no exit fees.
- Borrow up to 80% of your home’s value.
- Refinancing only.
What is a good credit score in Australia?
Your credit score is determined by credit reporting bodies (CRBs) in Australia. They are:
The CRBs will use each person’s private financial history to view spending/credit patterns. They each have their own algorithm to assess your credit history and assign you a score. The scores differ slightly between them, but all three work on a tier system.
Experian and Illion score between 0 and 1,000 while Equifax scores with an upper limit of 1,200. For Illion and Experian to be on the ‘very good’ tier, you’ll need a score between 700 – 799. Meanwhile, an ‘excellent’ score is between 800 – 1,000. For Equifax, which is a little higher, a ‘very good’ score is between 726 – 832. And finally, an ‘Excellent’ score is between 833 – 1200.
What credit score do you need when buying a house?
Each loan provider is different. Some will value your credit score greatly while others may value their internal assessment more.
That disclaimer is just to say there is no definitive answer to this question. However, there are certain trends in the market that make for a better home loan candidate.
One such trend is the average credit score that lenders look for. That is a score lying between 500 and 700.
Anything lower than this is too high a risk for mortgage providers. There are still options for these individuals though. One repercussion is a loan that has a higher interest rate.
How your credit score affects your interest rate
The interest rate you get on a loan (or any credit) relies on many factors. Your credit score happens to be one of them. An excellent credit score will likely get you the best rate the market can feasibly offer.
Lower scores will get a worse interest rate. In the worst case, the applicants with very low scores may not get a loan at all.
Having a great score also may allow you to negotiate and have access to a wider selection of loans. You may have a more flexible loan duration and qualify for a very large loan. How much you are allowed to borrow is referred to as ‘borrowing power’.
What an excellent credit score means for a home loan
Reputable lenders will make most of their money from the interest on a home loan. That is why it is extremely important for them to choose candidates that won’t default on payments. If you struggle to pay back a loan, the lender will have to repossess and auction off the property. They may break even, but often they suffer a loss.
This is why a good credit score is so highly incentivised. It is proof of great past behaviour. Since no one can predict the future, it is the only evidence that someone can handle a loan.
As a result, some of the benefits include:
- Higher loan approval rates
- Greater borrowing power
- Being in a better position to negotiate with lenders
- Lower interest rates
No matter how great your credit score is, you should still be shopping for the cheapest loan available. That includes interest rates and additional fees.
You can track your credit score with Finty and be alerted every time the value changes significantly. This can help you see how your credit habits fare on a monthly basis. It can be extremely motivating to see improvements in real-time!
How to maintain your credit score
Keeping a high credit score can be difficult if you don’t pay attention. With positive credit reporting, it is easier to bring your score down than the other way round6.
Your habits are likely already very good. However, there are some things you should avoid:
- Don’t apply for unnecessary credit. Making too many credit inquiries can adversely affect your score. This is true even if they’re all approved. New credit applications account for 10% of your credit score!
- Aim to bring your credit limit down. Lenders will look to your credit limit more than your monthly expenditure. Bringing your credit limit down will make you look more credible.
Lastly, you should familiarise yourself with comprehensive credit reporting (CCR). It will help you understand what personal financial information credit agencies look at when making their assessments.
An excellent credit score has its advantages. Lower interest rates, more leverage when negotiating and greater borrowing power, to name a few.
For most people, a property is the largest asset they may ever own and it can take several decades to pay off! It’s probably true then that a cheaper home loan overall is likely the best advantage.
Having a great credit score can save you tens or even hundreds of thousands! That’s why you should check it at least annually to know where you stand. Even if you don’t need to improve it, you still need to make a conscious effort to maintain your good standing.