Buying your first home is an exciting milestone, but it can feel overwhelming when you start hearing terms like “credit score” and “credit history” thrown around. If you’re wondering how your credit score might impact your ability to secure a home loan, you’re not alone. The good news? Understanding what lenders look for and taking some practical steps can put you in a much stronger position.
Let’s walk through exactly how your credit score affects your first home loan application, and what you can do about it.
What Lenders Really Look For in Your Credit History
When you apply for a home loan, lenders want to know one thing: are you likely to repay the loan on time? Your credit history is one of the key tools they use to answer that question.
Your credit score is a numerical figure—typically ranging between 0 and 1,000 or 0 and 1,200, depending on the credit reporting agency—that indicates your reputation as a borrower. Think of it as a report card for your financial behaviour.
But your credit score isn’t the only thing lenders examine. They’ll dive into your entire credit report, which includes:
Your repayment history: Have you consistently paid your bills, loans, and credit cards on time? This is the biggest factor influencing your credit score. Even one late payment can leave a mark.
Credit enquiries and applications: How many times have you applied for credit recently? Multiple applications in a short period can be a red flag, as it may suggest you’re financially stressed or taking on too much debt.
Defaults, court judgements, and bankruptcies: Any serious negative marks on your credit file can significantly lower your score and make lenders wary.
The types of credit you’ve accessed: Lenders also look at what kind of credit you’ve used. For example, a modest car loan from a bank is viewed more favourably than multiple payday loans, which can signal financial difficulty.
Your credit profile: This includes how long you’ve had credit accounts and your personal details like age and employment history.
Different lenders use different approaches when assessing credit, so what might be acceptable to one lender could be a deal-breaker for another. That’s why working with a mortgage broker can be invaluable—they know which lenders are more flexible and can match you with the right one for your situation.
How Credit Cards, Personal Loans, HECS Debt and More Affect Your Borrowing Power
You might be surprised to learn that it’s not just your credit score that matters—it’s also what’s on your credit file and how much debt you’re currently managing.
Credit Cards
Even if you rarely use your credit card, lenders will consider your full credit limit as potential debt. That’s right—if you have a $10,000 limit but only use $500, lenders may still factor in the full $10,000 when calculating your borrowing power. This is because, theoretically, you could max out that card at any time.
What you can do: Consider reducing your credit card limits or closing cards you don’t use. This simple step can boost your borrowing capacity and potentially improve your credit score.
Personal Loans
Any personal loans you have will reduce the amount lenders are willing to let you borrow for a home loan. Lenders assess your debt-to-income ratio—basically, how much you owe compared to how much you earn. The higher your existing debt, the less you can borrow for a mortgage.
What you can do: If possible, pay down or pay off personal loans before applying for a home loan. This will improve your debt-to-income ratio and strengthen your application.
HECS-HELP Debt
HECS-HELP debt is treated differently from other debts, but it still affects your borrowing power. Lenders factor in the minimum repayment amount based on your income, which reduces the amount they’ll lend you.
While HECS debt doesn’t appear on your credit report (unless you fail to make compulsory repayments after a tax assessment), it’s still declared during the home loan application process and will be considered in your serviceability calculations.
What you can do: There’s not much you can do to remove HECS debt quickly, but being aware of how it impacts your borrowing power helps you set realistic expectations. Some lenders are more lenient with HECS debt than others, so again, a broker can help you find the right fit.
Other Debts
Buy-now-pay-later services (like Afterpay or Zip), car loans, and even outstanding bills can all affect your borrowing capacity. Lenders want to see that you can comfortably manage your existing commitments before they add a mortgage to the mix.
What you can do: Close any buy-now-pay-later accounts you’re not using, and make sure all your bills are paid on time.
Practical Steps to Improve Your Credit Before Applying
If your credit score isn’t where you’d like it to be, don’t panic. There are concrete steps you can take to improve it before you apply for a home loan.
1. Check Your Credit Report
You can’t fix what you don’t know about. Check your credit report with all three major credit reporting agencies in Australia: Equifax, Experian, and Illion. You can access your credit score for free, and it only takes a few minutes.
Look for any errors or inaccuracies—sometimes credit reporting agencies make mistakes, or there could be incorrect information due to identity theft or simple administrative errors. If you spot anything wrong, contact the credit reporting agency and your credit provider straight away.
2. Pay Your Bills and Loans on Time
This is the single most effective way to improve your credit score. Consistently making on-time repayments on your credit cards, personal loans, utility bills, and any other debts will gradually lift your score.
Set up automatic payments or reminders so you never miss a due date.
3. Reduce Your Debt
Work on paying down your existing debts. Not only will this improve your credit score, but it will also increase your borrowing power when you do apply for a home loan.
Focus on high-interest debts first, and consider consolidating multiple debts into one loan with a lower interest rate if that makes sense for your situation.
4. Lower Your Credit Card Limits
As mentioned earlier, even unused credit limits can count against you. Contact your credit card provider and request a reduction in your limit, or close any cards you don’t need.
5. Avoid Multiple Credit Applications
Every time you apply for credit, it’s recorded on your credit file. Too many applications in a short time can lower your score and make lenders nervous.
If you’re shopping around for a home loan, speak with a mortgage broker who can assess your situation and approach lenders on your behalf without you having to make multiple applications yourself.
6. Keep Old Credit Accounts Open (If They’re in Good Standing)
The length of your credit history contributes to your credit score. If you have an old credit card or loan account that’s in good standing, consider keeping it open—even if you don’t use it often—as it shows a longer credit history.
7. Seek Professional Help If You Need It
If you’re struggling with debt, don’t wait until it becomes a bigger problem. Most lenders have financial hardship teams who can work with you to create a repayment plan. You can also speak to a free financial counsellor who can help you budget, negotiate with lenders, and get back on track.
Timing Advice: When to Fix Your Credit and When to Apply
Timing is everything when it comes to credit scores and home loan applications. Here’s how to approach it strategically.
How Long Does It Take to Improve Your Credit Score?
Improving your credit score isn’t an overnight process, but you can start seeing results within a few months if you’re consistent. Payment history has the biggest impact, so even three to six months of on-time payments can make a difference.
More significant changes—like clearing defaults or paying off large debts—may take longer to reflect positively on your score, but the effort is worth it.
When Should You Start Working on Your Credit?
If you’re planning to buy a home in the next 6 to 12 months, start working on your credit now. This gives you enough time to:
- Check your credit report and dispute any errors
- Establish a pattern of consistent, on-time payments
- Reduce your debt levels
- Lower your credit card limits or close unnecessary accounts
When Should You Apply for a Home Loan?
Ideally, you should wait to apply for a home loan until your credit score is in good shape—generally, a score of 500 or above is acceptable to most lenders, though 620 or higher is preferable.
However, if your score is below 500, it’s worth spending more time improving it before you apply. Applying with a low score could result in rejection, and those rejected applications stay on your credit file, which can make future applications even harder.
What If You Need to Buy Sooner?
If you need to buy a home before your credit score has fully recovered, all is not lost. There are lenders who specialise in helping borrowers with less-than-perfect credit. These loans typically come with:
- Higher interest rates
- Higher fees
- A requirement for a larger deposit (often more than 20%)
While these conditions aren’t ideal, they can be a stepping stone. Once you’ve made consistent repayments on your mortgage, you can work on refinancing to a better rate down the track.
A mortgage broker can help you navigate these options and find a lender who’s willing to work with your current situation.
What Credit Score Do You Need for a Home Loan?
There’s no single “minimum” credit score that applies across the board, but here’s a general guide based on how the three major credit reporting agencies in Australia categorise scores:
Equifax (0–1,200 scale)
- 853–1,200: Excellent
- 735–852: Very good
- 661–734: Good
- 460–660: Average
- 0–459: Below average
Experian (0–1,000 scale)
- 800–1,000: Excellent
- 700–799: Very good
- 625–699: Good
- 550–624: Fair
- 0–549: Below average
Illion (0–1,000 scale)
- 800–1,000: Excellent
- 700–799: Great
- 500–699: Good
- 300–499: Room for improvement
- 0–299: Low
In general, a score below 500 can make it challenging to get approved for a home loan with a mainstream lender. However, every lender is different, and some are more flexible than others.
Can You Get a Home Loan with a Low Credit Score?
Yes, it’s possible—but your options will be more limited, and the terms may not be as favourable.
Some lenders specialise in helping borrowers with poor credit. These are sometimes called “non-conforming lenders,” and they’re willing to take on more risk. However, you can expect:
- Higher interest rates
- Higher upfront and ongoing fees
- A larger deposit requirement
If you do secure a home loan with a low credit score, use it as an opportunity to rebuild your credit by making every repayment on time. After a year or two of consistent repayments, you may be able to refinance to a better rate with a mainstream lender.
How Comprehensive Credit Reporting (CCR) Helps First-Home Buyers
In recent years, Australia introduced Comprehensive Credit Reporting (CCR), which has been a game-changer for many borrowers.
Previously, credit reports focused mainly on negative information—defaults, missed payments, and bankruptcies. CCR now also records positive behaviour, such as consistently making on-time repayments.
This means that if you’ve been responsible with your credit, even if you’re a first-home buyer with limited history, you can demonstrate your creditworthiness more effectively. It’s another reason why maintaining good payment habits is so important.
Final Thoughts: Take Control of Your Credit Before You Apply
Your credit score plays a significant role in your ability to secure a home loan as a first-home buyer, but it’s not the only factor—and it’s certainly not set in stone.
By understanding what lenders look for, managing your existing debts wisely, and taking practical steps to improve your credit, you can put yourself in the strongest possible position to get approved for a home loan with favourable terms.
And remember, you don’t have to navigate this journey alone. A mortgage broker can provide expert guidance, help you understand your options, and connect you with lenders who are the right fit for your circumstances.
Whether your credit score is excellent or needs some work, there are pathways to homeownership. The key is to start early, stay consistent, and get the right advice along the way.
Ready to take the next step? Let’s have a chat about your home loan options and how we can help you get into your first home.