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What’s the minimum credit score for a home loan?
A good credit score makes it easier to get a home loan in Australia. There's no minimum score for eligibility, but checking your credit score before applying for a mortgage is wise.
In Australia, your credit score isn't the only determining factor in getting approved for a home loan. Lenders have their own eligibility criteria, and examine multiple elements of your financial life. This includes your savings, your spending habits, and your debts and income. So worrying about falling under a specific minimum credit score isn't all that helpful.
But your credit score is a good indication of your reliability as a borrower. If your score is below the "Good" threshold, you may have some credit problems you aren't even aware of. Getting these problems sorted will improve your chances of approval when applying for a home loan.
Check your credit score before applying
A lender will check your credit score as part of your loan approval. But you can check it yourself before you even start comparing home loans. This is a good idea for several reasons:
You can get a good sense of your financial health.
You can identify credit issues and work to fix them.
You can catch any errors in your credit history and get them removed.
Doing all of this will speed up your home loan application and make the whole process easier.
Check your credit score for free via the Finder app
There are many services that will give you your credit score with just a few simple details, and for free. One way you can do this is through the Finder app.
The Finder app updates your credit score every month, so you can see in real time whether your score is improving as you pay off outstanding debts and get your finances in shape.
What is a credit score and how does it affect my home loan application?
In Australia, we use something called positive credit reporting, which means your score is calculated based on how often you make payments on time together with how often you are late with your bills. Credit scores generally fall between 0 and 1,200, and because of positive credit scoring, it's important to "build your credit" with things like mobile phone plans before you start applying for credit cards and home loans.
A score of 500 to 700 is generally considered an average score in Australia. When applying for a home loan, you'll want your credit score to be at least average. If you have a below-average credit score, you may have trouble being approved for a home loan from many lenders, because it indicates you're a higher credit risk.
A good credit score is considered to be above 800: If you score in the 800s, you have a better chance of getting a home loan approved. Anything between 800 and 1,200 is considered to be excellent, and you'll be likely to gain home loan approval, provided you meet other loan income and eligibility criteria.
Why an excellent credit score doesn't mean loan approval is guaranteed
You could have the highest credit score on the scale and still have a loan application rejected. This is because the credit score is only one factor. Your chances of approval are also affected by:
How much you want to borrow relative to your income
The value of your property in relation to your deposit size (your loan-to-value ratio)
Your outstanding debts
Your spending habits
Your employment history
Finder survey: How do Australians of different ages prefer to apply for their home loan?
Response
75+ yrs
65-74 yrs
55-64 yrs
45-54 yrs
35-44 yrs
25-34 yrs
18-24 yrs
In a branch
72.09%
62.73%
55.56%
45.89%
44.09%
43.69%
60%
Online
13.95%
22.36%
29.24%
37.68%
43.31%
47.57%
25.71%
Other
9.3%
8.7%
9.94%
8.7%
3.94%
2.91%
1.43%
Over the phone
2.33%
3.73%
4.68%
6.76%
4.33%
3.4%
8.57%
Via an app
2.33%
2.48%
0.58%
0.97%
4.33%
2.43%
4.29%
Source: Finder survey by Pure Profile of 1112 Australians, December 2023
How can I improve my credit score?
A good place to start is by looking at your credit report and then make sure all the information within it is correct.
It’s a good idea to do this regularly and before making any financial decisions, so that if you apply for a loan there are no nasty surprises. If you don’t check before you apply for a loan and then get denied, you’ll also have this recorded in your credit history, so it pays to be careful.
Another interesting point to consider is whether or not to apply for any new credit products before you approach your lender to ask for a loan. If you have no previous credit products on your credit report, taking out a credit card can be a good way to show your lender that you are able to service a debt.
But be careful, it can be easy to get into debt so make sure to pay your balance off in full each month and only apply for a credit card with a low limit. Defaulting on a payment will put you back months in the eyes of the bank. Taking out credit soon before you apply for a loan can also send a negative signal to your lender.
Can I get a home loan with a bad credit score?
Your credit score gives your lender the information it needs to know what kind of borrower you'll be. If you have a good credit rating you could have access to more home loan options and your home loan interest rates could be lower, saving you hundreds a month on your repayments.
If you have an average credit rating, you could pay higher interest rates and have fewer home loan options to choose from, and if you have a bad rating you may not be able to get approval for a loan at all.
Your credit rating isn't the only factor a lender will take into account when approving or denying your home loan application, so don't panic just yet if you've got a less-than-ideal record.
Your application might be rejected for several reasons, and not always because of our credit history. These include:
A bad credit history
A savings history which is not genuine (for example, savings which were a gift)
Employment which hasn’t been continuous or consistent
An income which won’t be able to service repayments
If your application is rejected you need to work out why. Start by checking your credit score and seeing if there are any obvious ways to improve it. You should also make sure you're applying for a mortgage you're actually eligible for. If you've saved a 10% deposit then you shouldn't be applying for a loan that requires a 20% deposit.
But if bad credit is the reason your application was rejected, all may not be lost. There are a number of lenders in the market who offer non-conforming loans and bad credit products, such as Pepper Home Loans. These specialist lenders may be able to help you.
As an authority on all things personal finance, Sarah Megginson is passionate about helping you save money and make money. She is an editor and money expert with 20 years’ experience and an extensive background in property and finance journalism. Sarah holds ASIC RG146-compliant Tier 1 Generic Knowledge certification, and she's a regular media commentator, appearing weekly on TV (Sunrise, Daily, Studio 10, nightly news), radio (KIIS FM, Triple M, 3AW, 2GB, 6PR) and in digital and print media.
When you apply for a home loan, a lender will take many serviceability factors into consideration when deciding whether or not to approve your application.
I am 72 years old – I would like to make an offer to my landlord – work perm full time – excellent credit history – been advised the longest loan I can obtain is 8 years !! Good savings – property in WA rented out
The reason the banks will only lend you for an 8-year loan term is that they want to make sure you have the capacity to repay the loan for the duration of the loan term. In this case, the bank is willing to accept that you’ll work until you’re 80. If they extended you a 30-year loan, they would be making the assumption you’ll work until you’re 102 – which hopefully won’t be the case!
You mentioned you own a rental property. This might help you put a case forward to a bank where you say: I would like a home loan. In 8 years’ time, I plan to sell my investment property to pay off my owner-occupier loan in full when I retire from work. With this plan in place, they may be willing to offer you a longer loan term.
It’s a good idea to contact a mortgage broker, who can help you work out what your options are.
As long as you are on time for your repayments, it will not affect your credit rating. Please refer to our credit file guide to know what will affect your credit score.
Should you wish to have real-time answers to your questions, try our chatbox on the lower right corner of our page.
Generally, lenders have different eligibility criteria and will take into account a range of factors, other than your credit rating, when reviewing your application.
Ultimately, they will review your income, debts, and any other existing liabilities to determine your ability to service the mortgage.
You can read our advice about how to improve your chances of getting approved for a home loan application even if you have a bad credit rating, and you can enquire with a lender that’s more likely to review your application.
I recommend getting in touch with a licensed mortgage broker. A broker can help you understand your financial position and they can leverage their panel of networks to find a lender that’s more inclined to review your application.
If a person does not have credit card, can a home loan application be considering on saving account transactions (as in this case there won’t be a credit history)?
When reviewing a home loan applications, lenders will review your income, assets and any existing debt that you have against your name to determine your ability to repay the loan.
To answer your question, a credit card is not required for a home loan application to be assessed, and the lender will take into account your savings history, among other criteria when reviewing your serviceability.
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I am 72 years old – I would like to make an offer to my landlord – work perm full time – excellent credit history – been advised the longest loan I can obtain is 8 years !! Good savings – property in WA rented out
Hi Joy,
The reason the banks will only lend you for an 8-year loan term is that they want to make sure you have the capacity to repay the loan for the duration of the loan term. In this case, the bank is willing to accept that you’ll work until you’re 80. If they extended you a 30-year loan, they would be making the assumption you’ll work until you’re 102 – which hopefully won’t be the case!
You mentioned you own a rental property. This might help you put a case forward to a bank where you say: I would like a home loan. In 8 years’ time, I plan to sell my investment property to pay off my owner-occupier loan in full when I retire from work. With this plan in place, they may be willing to offer you a longer loan term.
It’s a good idea to contact a mortgage broker, who can help you work out what your options are.
Best of luck!
Sarah
If I go interest only for a year will it affect my credit rating?
Hello Matt,
Thank you for your comment.
As long as you are on time for your repayments, it will not affect your credit rating. Please refer to our credit file guide to know what will affect your credit score.
Should you wish to have real-time answers to your questions, try our chatbox on the lower right corner of our page.
Regards,
Jhezelyn
If you have had a bad credit rating and it is now clear do they still consider you a risk? (For home loan)
Hi Lauren,
Thanks for your enquiry.
Generally, lenders have different eligibility criteria and will take into account a range of factors, other than your credit rating, when reviewing your application.
Ultimately, they will review your income, debts, and any other existing liabilities to determine your ability to service the mortgage.
You can read our advice about how to improve your chances of getting approved for a home loan application even if you have a bad credit rating, and you can enquire with a lender that’s more likely to review your application.
I recommend getting in touch with a licensed mortgage broker. A broker can help you understand your financial position and they can leverage their panel of networks to find a lender that’s more inclined to review your application.
Thanks,
Belinda
If a person does not have credit card, can a home loan application be considering on saving account transactions (as in this case there won’t be a credit history)?
Hi Kanika,
Thanks for your enquiry.
When reviewing a home loan applications, lenders will review your income, assets and any existing debt that you have against your name to determine your ability to repay the loan.
To answer your question, a credit card is not required for a home loan application to be assessed, and the lender will take into account your savings history, among other criteria when reviewing your serviceability.
Thanks,
Belinda