Taking out a home loan in Australia is a big step in your life, and your lender will consider various things as to whether you will make a good borrower or not. The income you have, the size of your deposit and your employment history are highly important, but the most important and least understood factor is something like your credit score; your credit score is your home loan. It is one of the major signs that lenders will look at to determine how reliable you are as a borrower.

The first step to a competitive interest rate and seamless application process is understanding the credit score required to get a home loan in Melbourne.

Why Does Your Credit Score Matter for a Mortgage?

Think of your credit score as a financial snapshot of your past borrowing behaviour. For banks and lenders, it serves as a powerful risk assessment tool.

  • Higher score = Better terms: A high credit score for a mortgage loan signals to lenders that you are a low-risk borrower, which can give you access to lower interest rates and a higher borrowing capacity.
  • Lower score = Stricter conditions: A low score may result in a higher interest rate, a smaller loan amount, or even a rejection of your application. Lenders might also require a larger deposit or a guarantor to offset the perceived risk.

Your credit score reflects your creditworthiness for a home loan.

What’s a Good Credit Score for a Home Loan in Australia_

Minimum Credit Score for a Home Loan in Australia

Not every lender has just one universally needed number. Equifax, Experian, and Ilion are the three major credit reporting mechanisms in Australia, and each of them is based on a different scoring model.

Here’s a general breakdown of their score ranges:

  • Equifax (0–1200):
    • 300–509: Poor
    • 510–621: Average/Fair
    • 622–725: Good
    • 726–832: Very Good
    • 833–1200: Excellent
  • Experian (0–1000):
    • 0–549: Below Average
    • 550–624: Fair
    • 625–699: Good
    • 700–799: Very Good
    • 800–1000: Excellent
  • Illion (0–1000):
    • 1–299: Low
    • 300–499: Room for Improvement
    • 500–699: Good
    • 700–799: Great
    • 800–1000: Excellent

Generally speaking, most lenders are pleased with a score in the Good range or higher (the most common range being 600 or higher, but not all models). A score of 700 or higher (Very Good or Excellent) is usually necessary to obtain the most competitive interest rates and terms on a loan. Understanding your minimum credit score on a house loan is the most important thing that one should know to buy a house based on credit score.

What Credit Score Do You Need for Different Types of Loans?

The credit score expectations can vary significantly depending on the type of home loan you are applying for.

Standard Home Loans

A score of 650-700+ is generally required by most of the big banks and lenders. This indicates to them that you have a good record of spending your money wisely.

Low Deposit Loans (LVR above 80%)

Lenders will consider you a riskier borrower when you have a smaller deposit than 20% and require borrowing more. In case of these loans, a credit score of 700 or above is likely to be required to cover the risk of a home loan.

First Home Buyer Loans

Some lenders might be more accommodating with first home buyers, particularly when you have a guarantor or when you are trying to obtain a government-supported program. Nevertheless, an excellent credit score will provide you with a better standing.

Specialist Loans (Bad Credit, Self-Employed)

Non-bank and specialist lenders cater to a wider range of financial situations. They can authorise the 500-600 score range, but it usually results in a trade-off of a higher interest rate and fee.

How Lenders Assess Your Credit Beyond the Score

Your credit score is just one piece of the puzzle. Lenders also perform a comprehensive review of your financial history. They look at:

  • Repayment history: Do you consistently pay bills, credit cards, and loans on time?
  • Defaults or missed payments: Have you had any significant defaults, bankruptcies, or court judgments?
  • Credit enquiries: Have you made multiple applications for credit (loans, credit cards, phone plans) in a short period? This can be a red flag.
  • Existing debt-to-income ratio: How much of your income is already committed to existing debt repayments?
  • Employment stability: Your length of employment and income type also play a role in their assessment.

5 Ways to Improve Your Credit Score Before Applying

If your credit score isn’t where you want it to be, don’t despair. You can take proactive steps to improve it.

1. Pay Bills and Loans on Time

This is the most important factor. Automate direct debits or reminders to avoid missing any payment on credit cards or phone bills, and other loans.

2. Reduce Credit Card Balances

Maintain the amount of credit you use by balancing your credit cards. Lenders would like to see that you are only utilising less than 30% of your total credit limit.

3. Limit Credit Applications

Each time you apply for credit, a “hard enquiry” is recorded on your report. Too many enquiries in a short timeframe can make you look desperate for credit and negatively impact your score.

4. Check and Correct Credit Report Errors

Request a free credit report at Equifax, Experian, or Illion. Check it over to detect falsehood or fraud. If you find an error, you can contest it with the credit reporting agency.

5. Avoid Payday Loans or High-Risk Credit

Short-term high-interest loans are looked down on by lenders. When you have one on your report, it will be a big red flag.

Can You Get a Home Loan with a Low Credit Score?

Yes, it is possible. Having a low score may complicate the process, but it does not necessarily mean that you should give up on your dream of owning a home.

  • Specialist lenders: Non-traditional lenders often have more flexible criteria and can assist clients with less-than-perfect credit.
  • Guarantor loans: A family member with good financial standing can act as a guarantor, which reduces the risk for the lender.
  • Larger deposits: A larger deposit shows the lender you are a serious and financially disciplined borrower.
  • Higher interest rates: The trade-off for a lower score is often a higher interest rate, which is a key part of the credit requirements for home loan approval.

How a Mortgage Broker Can Help with Your Credit Score

This is where a trusted broker in Melbourne becomes invaluable. We don’t just process applications; we provide a personalised strategy.

  • Understanding lender credit policies: We know which lenders are more flexible on credit scores for home loan requirements.
  • Matching clients: We can match your financial profile with the right bank or non-bank lender that is most likely to approve your application.
  • Strategies to improve approval chances: We can provide tailored advice on how to improve your score and financial position before you apply.
  • Negotiating better rates: For those with a high score, we can leverage your strong financial position to negotiate better rates and terms.

Final Thoughts

Having a home loan credit score that is 600+ is generally regarded as a good score to have in Australia, though a score of 700 or more will open access to the best of the best loan products. Increasing your score will be time-consuming and require some discipline; however, the reward is great, which means improved rates and higher approval rates.

You can not make it on your own in the complicated world of credit requirements. A mortgage broker who has expertise can assist you on the road map to a successful home loan application and help you understand your credit status.

Contact us today and book a consultation with our expert mortgage brokers. Your credit score is our priority to get a better home loan.

FAQ – Credit Scores and Home Loans in Australia

What is the minimum credit score for a home loan in Australia?

While there’s no single minimum, most major lenders prefer a score of 600 or higher. For the best rates, aiming for a score above 700 is recommended.

Can I get a home loan with a bad credit score?

Yes, it is possible. Specialist lenders and non-bank lenders may consider your application, but they often require a larger deposit or charge a higher interest rate to offset the risk.

Does applying for a mortgage hurt my credit score?

Yes. When you apply, the lender performs a “hard enquiry,” which is recorded on your credit file and can cause a small dip in your score. Multiple enquiries in a short period can have a more significant negative impact.

How long does it take to improve a low credit score?

Improving your score takes time, as credit history is a long-term record. It can take anywhere from a few months to a couple of years to see a significant improvement, especially after addressing past issues like missed payments or defaults.

Do guarantor loans require a high credit score?

A guarantor loan can sometimes compensate for a low credit score, as the lender has the added security of the guarantor. However, a stronger score will still improve your overall application.

Do all banks use the same credit scoring system?

No. While they all use the reports from the same three credit reporting bodies, each bank has its own internal scoring and lending policies. A score that is “Good” for one bank may be considered “Average” for another.

What’s the difference between Equifax, Experian, and Illion scores?

These are the three main credit reporting bodies in Australia. Each has a different scoring range and slightly different criteria, so your score may vary between them. It’s a good idea to check your reports from all three.