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When looking to open a new home loan with a lender in Australia, there are several quotas that must be reached in order to meet loan eligibility criteria. One of the core quotas in this criterion is a suitable credit score, which must be over a certain rating in order for you to be considered financially secure and responsible enough to manage a home loan.

This raises the question of what is the minimum credit score for home loan in Australia? Knowing what number will allow you to easily apply for a new mortgage, and what will disqualify you, can help you prepare appropriately for the application process and make changes to your credit rating if needed.

What is credit score (or credit rating)?

Credit score, also referred to as credit rating, is a number that is determined by your accumulated borrowing and repayment history, as well as how regularly you have shopped around for credit.

Your rating indicates to lenders how trustworthy you are as a borrower, with a higher number equalling better trustworthiness. Based on this number and other risk criteria, your lender will also determine how much they can lend you and at what interest rate.

How is my credit score calculated?

Australian credit report agencies take responsibility for calculating credit scores, utilising key criteria to determine what number your score falls under. Although each agency often uses its own score system, it is understood by banks and independent home loan specialists alike what constitutes a good score or not.

In order to calculate your credit score, an agency will look at:

  • Any debt you have, as well as any you have accrued in the past, and if you have ever had difficulties meeting their repayments
  • If you have a history of bankruptcy
  • Your credit and store cards
  • If you have court judgments or writ held against you
  • Your existing credit limit
  • Any loans or inquiries you have taken out, whether it was for a personal loan, for property acquisition or renovation, or even as a guarantor for someone
Loan manager concept. Credit report document concept. Young man standing around credit rating. Vector illustration in flat style

Ensuring your financial situation is in order before applying for a home loan can increase your chance of having a good credit score. For those concerned about not meeting this rigid criterion, however, meeting the minimum credit score is often more important than anything else.

So what is the minimum credit score required for a home loan?

What credit score do I need for a home loan?

The exact credit score you need for a home loan can differ depending on how your credit scoring agency calculates your number. Overall, however, if your credit rating is out of 1,200 then it is generally determined any score above 853 is excellent, while 661 and above is good. If you are scored out of 1,000 then a score of 690 and up is excellent, with above 540 being good.

With this general score in mind, how well lenders will respond to your score can be broken down into groups. These groups can also provide insight into whether or not you will be paying high interest rates, or if your lender may take some time to decide if you are capable of making home loan repayments.

Since Australian agencies generally do not make their credit rating criteria public, it can be hard to determine whether you have a high enough credit score to be eligible for a home loan. Especially since most lenders only use credit scores as one factor in determining whether or not you should be allowed a home loan.

In the situation where your credit score is determined out of 1,200, however, you can consider this rating overview to get an idea of if you have a good credit score. Click on the plus ⊕ icon on the graphic below to find out more.

Woman pushes credit score arrow gauge speedometer indicator with color levels. Measurement from poor to excellent rating for credit or mortgage loans concept flat style design vector illustration.
833-1,200: Considered an excellent score with extremely low risk by lenders.
726-832: A very good score that most lenders in Australia will consider trustworthy and unlikely to default on a mortgage.
622-725: Having an above-average credit score means you are in good standing and are likely to have lower interest rates than those with a below-average credit score.
510-621: Firmly in the average range, people with this score often have to provide additional requirements to be approved. Even with some bad marks in your credit score, your lenders will still look at other credit criteria to determine if home loan approval is possible.
Below 509: Any number below 509 is known as a poor or low credit score, determining you as a higher risk to lenders. You may still be granted a mortgage, but bad credit home loans may come with high interest rates.

What is the minimum credit score I need for a home loan?

The exact minimum credit score needed for home loan approval does depend on the scoring system used in your credit report, but overall most lenders look for average credit scores and above. This makes the minimum credit score required for a home loan to be around 650-700, depending on the scoring system applied to you.

What is a good and bad credit score?

Generally, a good credit score is determined to be an average score or higher, regardless of what kind of scoring system is used. Therefore, you should be looking to get your credit score in the 540-661 range if you want it to be considered good, and higher if you want it to be excellent.

To reach the point of a bad credit score, you have to be below the criteria of an average score. Being below the average score of around 460-660 in Australia means that it is incredibly difficult to get a home loan approval. 

Additionally, a low credit score means a significant interest rate due to being perceived as high risk. It is greatly advised to not let your credit score drop below the average rating to avoid such difficulties.

What to do if you have an average credit score?

If you have an average credit score, you are still capable of applying to most home loans so long as your current income and personal stability are top-notch. However, having an average credit score does mean that there is room for improvement beyond making the minimum criteria.

Many lenders will be interested in approving your home loan application so long as you have a decent credit history, but also maintain punctual bill payments, and have been known to make your home loan repayments on time. Being consistent and safe with your financial decisions reflects far better on your home loan application than seeking out higher risks for better rewards.

However, if you want to give yourself time to obtain a better credit score before buying a new home, you can try renting in the meantime. The buying vs renting debate in Australia is constant, but renting may be the best choice to make as you work on your credit rating.

For those inexperienced in mortgage and how your credit score may affect your first home loan, get in contact with your credit provider to discuss how you can start the journey to a good credit score.

Getting a home loan if you have a bad credit score

If you have a poor (or below-average) credit rating, the first step is to not be discouraged. Although it can be daunting to begin the process of amending your low credit score, that does not mean that it is impossible. With some time and changes to how you manage your finances, you should be able to improve your score enough to be easily approved for a home loan.

However, if you require a home loan and do not have the time to improve your credit rating, it is not the end of the world. You can still apply for home loans with a bad credit score, it will just be a different loan application process with more specialist lenders.

Otherwise known as bad credit home loans, these smaller specialist lenders offer their services to those who lack borrowing power due to bad credit scores. Since big banks and lenders do not usually approve credit inquiries from those with a low credit score, these smaller lenders step up to provide those in need of a home loan. However, their approval does not come without serious implications.

Implications of getting a home loan with a poor credit score

Seeking out a home loan when you have a poor credit score can often be worked around if your financial history and other credit criteria are in the green. However, applying for bad credit home loans may come with certain financial implications, namely:

  • Higher fees are applied to both upfront and ongoing fees, ranging from legal costs to application fees.
  • On top of paying higher fees, you will also have to pay a higher interest rate on your home loan.
  • You will experience a lower loan-to-value ratio (LVR) for your home loan, requiring you to pay a larger deposit than the usual 20% of a home’s value.

How to improve my credit score

To help improve your credit score, or to maintain it if you are happy where it is, you need to look into the factors that affect your score. By working on these factors and reaching certain goals, you are sure to improve your score over time.

Some of the more common factors you can work on include:

  • Paying off any debts you have as quickly as possible
  • Always paying your bills on time, including payments like phone bills or rent
  • Checking on your credit score regularly to ensure that all personal details are correct and there are no inaccuracies in your account information
  • Keeping your credit card balance well below the limit
  • Not making too many loan applications for credit
  • Avoiding any bankruptcy listings or court judgements
  • Not applying for bank transfers too often
Performance rating or customer feedback, credit score or satisfaction measurement, quality control or improvement concept, strong businesswoman pull the string to make rating gauge to be excellent.

Altogether, maintaining a positive financial and personal living is the best way to improve your credit score. Finding stable employment and housing, as well as beginning to save or invest, can help you on your journey to better credit scores.

What else do I need to get a home loan?

Before approaching your potential lender, it is important that you check on their requirements for a home loan approval. This will outline the other goals you will need to meet beyond a good credit score to find the home loan in Australia best suited for you.

With Homestar Finance, our home loan specialists can walk you through our approval process for a home loan to ensure that you are on the right track. We provide home loan pre-approval, otherwise known as a conditional approval – this fee-free process gets you in touch with our loan specialists and walks you through what needs to be done in order to make a home loan application with confidence.

Take control of your financial future!

If you are nervous about taking that first step to get a home loan, you can contact our team personally. Our home loan specialists are available by phone at 1300 462 209, or you can send an enquiry online if you prefer to type out your concerns. Either way, Homestar Finance is here to help you through your home loan application journey, credit score and all!

Disclaimer: This article is not intended as legal, financial or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature you should seek advice from a qualified and registered Australian legal practitioner or financial or investment advisor.  

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    Understanding more about credit scores for a home loan

    Are there any lenders who do not look at credit score?

    There may be lenders out there who do not check your credit score before offering a home loan, but this is a rare instance usually offered with higher interest rates. This should only be an option taken if you have particularly bad credit.

    Can I get a home loan with a 500 credit score in Australia?

    With a 500 credit score being on the lower end of the average credit score range, it is still possible to apply for most home loans in Australia. You may face higher interest rates than those with an excellent or good credit score, but you should still meet approval.

    What is the lowest credit score anyone can have?

    Although most credit score agencies start numbering credit ratings from zero and up, it is impossible to have a score that low. The lowest credit score anyone can have is generally around 300, which means an amendment to your credit history and financial decisions are a must.