If you’re applying for a loan or credit card, you might have read that you’ll need a ‘good’ credit score or rating.
This is a fairly typical example….
But what does that actually mean?
I’ve worked with dozens of Australian lenders and, believe me, it can mean very different things depending on which one you ask.
The credit score ranges used by credit reporting companies are a helpful guide.
But even when you check your credit score that's not necessarily the same as knowing what's ‘good’ in a lender’s eyes.
Here’s how it works.
What is a good credit score?
In Australia, credit scores are calculated by credit reporting agencies in different ways, so the scores may vary slightly. But as a general rule, a credit score above 660 will be considered good, while a score of 853 or above will be considered excellent.
A good credit score indicates you are a responsible borrower and may increase your chances of being approved for credit, with better interest rates.
Keep in mind lenders also consider other factors, such as your income, employment history, and how much other debt you have, when making credit decisions. It's important to check your credit report regularly and address any errors or inaccuracies to maintain a good credit score.
Here's the full breakdown of the credit score ranges from Australia's three main credit reporting companies and how they label them.
Credit score ranges in Australia
| Equifax | Experian | illion |
|---|---|---|
Excellent: 853-1,200 | Excellent: 800-1000 | Excellent: 800-1000 |
Very good: 735-852 | Very good: 700-799 | Great: 700-799 |
Good: 661-734 | Good: 625-699 | Good: 500-699 |
Average: 460-660 | Fair: 550-624 | Room for improvement: 300-499 |
Below average: 0-459 | Below average: 0-549 | Low score: 1-299 |
But is your credit score actually good?
These ranges are a helpful indication of how good your score is.
But what lenders think is good is really what matters.
For example, when estimating interest rates on personal loans, major bank ANZ only classifies scores over 675 as good.
Anything below that is ‘average’.
This is higher than the credit reporting agencies’ cut offs for what’s ‘good’.
NOW look at the interest rate difference if your credit score is just one point higher…
The takeaway is, it can really pay to get quotes from MULTIPLE lenders based on your credit score.
The difference between them based on very slight credit score changes can be massive.
What does having a good credit score mean?
A good credit score indicates there are no significant negative events on your credit report.
In other words, you’ve been able to repay your loans or other credit products (like credit cards) and utility bills consistently.
This is good news, because:
- You should be eligible to get a loan from most providers
- At a lower interest rate than some other borrowers
- And with a higher credit limit
You see, lenders use your credit score as part of their credit assessment criteria. And a higher credit score means less risk for the lender.
Having a good credit score (and getting a better interest rate) can mean being able to repay your debt sooner, which can be good for your overall financial health.
What do the other credit score ranges mean?
The exact labels used to describe them vary, but generally there are four other credit score levels:
Excellent
An excellent credit score shows lenders that you have a strong credit history. You should be able to access credit easily, including the best interest rates and favourable loan terms.
Very Good
Provided you are able to make repayments you should be able to secure finance easily with a very good credit score. You may not get rates as good as those with an excellent credit score.
Average
An average score may mean higher rates and stricter terms than very good and excellent scores, but in most cases, you should still be able to secure finance.
Low/below average
A low credit score indicates to lenders that you have bankruptcies, defaults or other negative events in your credit history. Traditional lenders may deny your applications for finance or charge you higher interest rates.
Is your credit score important in Australia?
Yes your credit score is an important aspect of your financial position, as it indicates to lenders and other credit providers how trustworthy you are as a borrower.
Lenders use your credit score to determine whether you're eligible to access credit, and in the case of personal loans and car loans, at what interest rate.
In other words, if you have a good credit score, it will be cheaper to get credit and easier to pay it back.
What products require a good credit score?
Lenders take several factors into account when assessing applications for credit.But generally with a good credit score you will find it easier get approved for:
Personal loans
Loans used for purposes like debt consolidation and home renovations will take into account your credit score when you apply. A good score makes the likelihood of approval high.
Car loans
These are secured loans (not as risky for lenders) so your credit score may be less of a factor. But some lenders (like the major banks) might still only give car loans to borrowers with a good credit score.
Credit Cards
For credit cards with a higher limit you may benefit from having a good score when you apply.
Home loans
The higher your score, the more willing a home loan provider will be to work with you.
What interest rate will I get with a good credit score?
It’s mainly on car loans and personal loans that having a good credit score will impact your interest rate.
The interest rates advertised by lenders are generally only available to borrowers with ‘excellent’ credit scores.
Borrowers with ‘very good’ credit scores would typically need to add 1-3% to the lowest rates advertised.
For borrowers with a good credit score, you may need to add 3-6% to the lowest rates advertised.
But other factors could influence your interest rate too, like:
- your income
- your employment status
- the purpose of the loan (i.e. whether it’s secured)
How could a bad credit score affect me?
Having a bad credit score isn’t the end of the world. But it can make getting credit more difficult. Some lenders may even deny your application for credit.
If your application is accepted you may have to pay a higher interest rate and have more restrictive loan terms.
This is why I usually recommend borrowers work on improving their credit score before applying.
But if you have a low credit score you may still be able to access credit with lenders who specialise in bad credit personal loans, car loans or home loans.
Is my credit score affected when applying for a loan?
At a certain point during the loan application process, a lender will need to conduct a credit check.
There are two types of credit checks:
Hard credit checks
Made when you make an official loan application. Hard credit checks are recorded in your credit history and can impact your credit score.
Soft credit checks
Less formal, such as when you’re simply checking your credit score. These are not recorded in your credit history and do not impact your credit score.
What's the average credit score in Australia?
The average credit score among Australians is 855 according to credit reporting company Equifax. That means on average Australians have a ‘very good’ credit score. Women (868) have a higher average credit score than men (850), while the average credit score is higher for older Australians.
Average credit score by age in Australia
| Age group | Average credit score |
|---|---|
18-30 | 731 |
31-40 | 829 |
41-50 | 868 |
51-60 | 918 |
61-70 | 935 |
Based on Equifax data from November 2023.
Looking across the states and territories, people in the ACT have the highest average credit score (900). The average is lowest in the Northern Territory (825).
