What credit score do you need to buy a house in Australia?

December 23, 2020

A credit score is so much more than just a number – it can be the difference between qualifying for a home loan or not. A bad credit score can seriously reduce your chances of being granted a home loan, and if you are lucky enough to be approved, there is then the issue of high interest rates to deal with. But what is the lowest credit score with which one can still qualify for a home loan in Australia? In this article, we will tell you everything you need to know about how your credit report and financial situation can impact on your mortgage application.

What is a Good Credit Score in Australia? 

Credit scoring isn’t universal, with the various bureaus generating their credit scores on a slightly different scale. This ranges from 0 to either 1000 or 1200, depending on the agency. Equifax is the biggest of these agencies in the country, holding information on millions of Australians. 

A five-point scale is used when making credit enquiries, running from below average to excellent. Here is a breakdown of the different classifications lenders look for:

  • Below average – Under 509
  • Average credit – 510-621
  • Good – 622-725
  • Very good – 726-832
  • Excellent – 833+

Can I get a Home Loan with Bad Credit in Australia? 

In a word, yes, it is possible to secure home loans even with a lower credit rating. However, those with less-than-ideal credit scores may find it necessary to seek a specialist lender if a mainstream lender is unwilling to offer the loan. Caution should be taken when using one of these providers, as they often charge a higher interest rate. In some cases, successfully managing loans from a non-conforming lender for a period can boost your chances of being able to remortgage and move to more conventional lenders such as a big bank. 

It is often worth trying to improve your credit score through means such as successfully making payments on credit cards prior to applying for a mortgage. This shows the bank that you are a low-risk borrower and thus your application is more likely to be successful.

Lending rules are being relaxed — not without concern in some quarters — so the prospects of being approved for a home loan are improving, even for those with a credit report that isn’t anything to write home about.

How Does Credit Score Affect Interest Rates? 

It probably goes without saying, but borrowers with an outstanding credit report will have a higher credit limit and will also be rewarded with a lower interest rate. Those who are deemed to be more high risk will, unfortunately, have to pay their mortgage broker more in interest each month compared to those with better credit reporting. This report lays out how the banks in Australia lend across different generations with “markedly divergent approaches on how they dole out credit”.

Can I get a Home Loan with no Credit History? 

Lenders consider those with no prior information on their credit file to be a higher risk when it comes to borrowing. In many cases, lenders may require borrowers to have a ‘trial run’ perhaps by taking out a credit card in which they can prove they are trustworthy at making payments on time. This gives the credit provider more info to base their decision on. 

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