Credit Rating

A credit rating is an assessment of the creditworthiness of an individual, business, or government entity. It reflects the likelihood that the borrower will be able to repay their debt obligations on time and in full. Credit ratings are used by lenders, investors, and other financial institutions to evaluate the risk associated with lending money or extending credit to a borrower. In Australia, credit ratings are provided by credit reporting agencies and are based on the individual’s or entity’s credit history and financial behaviour.

Key components of a credit rating

Credit score

A credit score is a numerical representation of an individual’s creditworthiness. In Australia, credit scores typically range from 0 to 1,200, with higher scores indicating better creditworthiness. Credit scores are calculated using various factors, including payment history, credit utilisation, length of credit history, types of credit accounts, and recent credit inquiries.

Credit report

A credit report is a detailed record of an individual’s or entity’s credit history. It includes information such as:

  • Personal information (name, address, date of birth)
  • Credit accounts (credit cards, loans, mortgages)
  • Payment history (on-time and late payments)
  • Defaults and bankruptcies
  • Credit inquiries (applications for new credit)
  • Public records (court judgements, insolvency proceedings)

Credit rating agencies

In Australia, credit ratings are provided by credit reporting agencies such as Equifax, Experian, and illion. These agencies collect and maintain credit information and provide credit reports and scores to lenders and other financial institutions.

Factors influencing a credit rating

Payment history

Payment history is one of the most significant factors affecting a credit rating. Timely payment of bills, loans, and credit card balances positively impacts the credit rating, while late payments, defaults, and bankruptcies have a negative effect.

Credit utilisation

Credit utilisation refers to the percentage of available credit that is being used. High credit utilisation can indicate financial stress and negatively impact the credit rating. Keeping credit utilisation below 30% is generally recommended for maintaining a good credit rating.

Length of credit history

The length of time an individual or entity has been using credit also influences the credit rating. A longer credit history provides more information for assessing creditworthiness and typically results in a higher credit rating.

Types of credit

Having a diverse mix of credit accounts, such as credit cards, personal loans, and mortgages, can positively impact the credit rating. It demonstrates the ability to manage different types of credit responsibly.

Recent credit inquiries

Applying for multiple new credit accounts within a short period can negatively affect the credit rating. It may indicate a higher risk of overextending financially. Lenders view multiple credit inquiries as a sign of increased credit risk.

Importance of a credit rating

Loan approval

Lenders use credit ratings to assess the risk of lending money to an individual or business. A higher credit rating increases the likelihood of loan approval and may result in more favourable terms and interest rates.

Interest rates

Credit ratings directly impact the interest rates offered by lenders. Borrowers with higher credit ratings are typically offered lower interest rates, reducing the cost of borrowing. Conversely, lower credit ratings can result in higher interest rates and increased borrowing costs.

Credit limits

Lenders use credit ratings to determine the credit limits for credit cards and lines of credit. A higher credit rating may result in higher credit limits, providing more financial flexibility.

Employment opportunities

Some employers, particularly those in financial services, may check an applicant’s credit rating as part of the hiring process. A good credit rating can enhance employment prospects in such industries.

Renting a property

Landlords and property managers may check a prospective tenant’s credit rating to assess their ability to pay rent on time. A higher credit rating can improve the chances of securing a rental property.

Improving a credit rating

Timely payments

Paying bills, loans, and credit card balances on time is crucial for maintaining and improving a credit rating. Setting up automatic payments or reminders can help ensure timely payments.

Reducing debt

Paying down existing debt and keeping credit utilisation low can positively impact a credit rating. Focus on reducing high-interest debt first and avoid accumulating new debt unnecessarily.

Monitoring credit reports

Regularly checking credit reports for errors and discrepancies can help maintain a good credit rating. If inaccuracies are found, they should be disputed with the credit reporting agency.

Limiting new credit applications

Avoiding multiple new credit applications within a short period can prevent negative impacts on the credit rating. Only apply for new credit when necessary and consider the long-term impact on the credit rating.

Diversifying credit

Maintaining a diverse mix of credit accounts and managing them responsibly can improve a credit rating. This demonstrates the ability to handle different types of credit.

Example of how to illustrate a credit rating

Consider an individual in Ballarat who wants to apply for a home loan. They have a credit score of 750, which is considered good. Their credit report shows a history of timely payments, low credit utilisation, and a diverse mix of credit accounts. Based on this strong credit rating, the individual is approved for the home loan with a competitive interest rate, saving them money over the life of the loan.


A credit rating is a crucial factor in determining an individual’s or entity’s creditworthiness and financial health. It influences loan approval, interest rates, credit limits, employment opportunities, and rental applications. By understanding the factors that impact a credit rating and taking proactive steps to maintain and improve it, individuals and businesses can enhance their financial standing and access more favourable financial opportunities. For more information on credit ratings and financial management, you can visit the Australian Securities and Investments Commission (ASIC) website.

DISCLAIMER: The information provided on this page is for general informational and educational purposes only and is never intended as financial advice. While we strive to ensure that the content is accurate and up-to-date, it may not reflect the most current legal or financial developments. Always consult with a qualified financial advisor or professional before making any financial decisions. Use the information at your own risk.

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