Credit scores matter, but they don’t tell the whole story. Especially if life’s thrown a few curveballs your way. Read on as we explain what a credit score is, how it can affect your home loan application, and practical steps you can take to strengthen your position over time.
What is a credit score?
A credit score is a number based on your credit history that helps lenders assess how likely you are to repay what you borrow. In general, a higher score suggests lower risk. A lower score can reflect things like missed payments, higher levels of debt, or a lot of recent credit applications, which may make it harder to borrow or mean you’re offered a higher interest rate.
When you apply for finance (like a personal loan, car loan, or home loan), you’ll usually go through a credit check.
Some common things that can affect your credit score include:
- Past defaults (even if you’ve since repaid them)
- Bankruptcy or insolvency events
- Late repayments (for example, credit cards or personal loans)
- Mortgage arrears
- Multiple recent credit applications, or being declined for credit
- Historical credit events can stay on your file and be visible to lenders for up to seven years.
The actual ‘score’ of your credit will often be assigned a number out of 1,000. This can vary slightly depending on the credit reporting provider.
- Excellent (750–1,000): generally considered lower risk and more likely to qualify for sharper rates and terms.
- Good (700–749): usually seen as a strong, reliable profile.
- Fair (550–699): you may still qualify, but you might need to provide extra information or accept a higher rate.
- Poor (below 550): considered higher risk; options may still be available, but borrowing power and pricing can be more limited.
What are the main factors that affect my credit score?
Credit scores take a range of information into account. Here are five common factors that can influence your score:
- Payment history: Paying loans, bills and credit cards on time can help your score. Missed or late payments can pull it down.
- Credit utilisation: How much of your available credit you’re using (for example, on a credit card). Keeping it lower (often under about 30%) is a common rule of thumb.
- Length of credit history: A longer history can help give lenders more information about how responsible you’ve been with credit over time.
- Types of credit: A mix of credit products (like credit cards, personal loans and a mortgage) can support a stronger profile.
- Recent applications: Applying for lots of credit in a short period can look riskier and may reduce your score.
What ‘bad credit’ really means
Not all defaults are treated the same. Here are just a few of the factors that can impact your score and trigger what may be deemed ‘bad’ credit by some lenders.
- The size of the default: Smaller defaults (for example, under $1,000) can be easier to work through than larger ones.
- How long ago it happened: Older defaults may be viewed differently to recent ones. Typically, these will stay on your file for up to seven years.
- Why it happened: Sometimes a default follows a one-off life event; like an illness, relationship breakdown or job loss, rather than ongoing overspending. Context can matter and choosing a lender that understands context is key.
Managing your credit score
Steps you can take before applying:
- Check your credit report for errors. Look for accounts that aren’t yours, incorrect limits, or missed payments recorded in error, then contact the credit reporting body to request a correction.
- Pay bills and repayments on time. Consistent on-time payments can help rebuild your score.
- Reduce credit card limits. Reducing the number of credit card and overall credit limit could improve your score and boost your borrowing capacity when you’re ready to apply for a home loan
- Avoid new credit applications right before you apply. Multiple enquiries in a short period can reduce your credit score.
- Get your paperwork organised early. If you’re self-employed or using alternative documentation, having BAS, bank statements or an accountant’s letter ready can help.
- Review your overall debt strategy. In some situations, consolidating debts may help you stay on top of repayments, but it’s worth getting advice first to make sure it’s right for you.
Applying for a home loan
Your credit score is one of the first things lenders may look at when you apply for a mortgage.
Your credit score can influence:
- Which lenders are available to you. Some lenders have minimum score requirements, while others, like Bluestone Home Loans, take a more flexible, case-by-case view.
- The interest rate and fees you’re offered. A strong credit profile may help you access sharper pricing and reduce the chance of incurring additional risk-based fees.
- How much you can borrow. A lower score as a result of missed payments or bankruptcy could mean tighter credit limits.
- Your ability to refinance later. Keeping your credit profile healthy can make it easier to refinance or access additional credit down the track.
Can you get approved with a lower credit score?
Yes, it’s possible to apply for a home loan with a lower credit score. It usually means you need the right lender with the right story and supporting documents.
Non-bank lenders like Bluestone can sometimes help where a bank’s criteria is too rigid. We assess applications individually, so your credit score is considered alongside your broader circumstances. If you’ve had a missed repayment, a rough patch, or you’re rebuilding after a credit event, there may still be options available, especially with the support of a broker.
The information provided in this article is general in nature and has been prepared without considering your requirements, objectives or financial situation. Bluestone Home Loans are administered by Bluestone Servicing Pty Ltd ACN 122 698 328, Australian Credit Licence 390183 on behalf of the Credit Provider, Permanent Custodians Ltd ACN 001 426 384. All loans are subject to suitability and credit assessment. Fees, terms, conditions, and lending criteria apply.
