How to Understand and Improve Your Credit Rating (and Why Your Future Depends On It)

If you’ve applied for a loan and been hit with a high interest rate, it’s not down to bad luck, the economy, or the lender you’re speaking with.

The harsh truth (said with love) is that the lender sees you as a walking red flag. 🚩

And why do they think that?

Because you’ve got a below average credit score hanging over your head.

That’s why a less-than-stellar credit score can cost you significantly — sometimes thousands of dollars over the life of a loan — because lenders penalise you for the perceived risk.

But it’s not all doom and gloom!

Whether you’re a first-time borrower looking to grow your credit score or looking to beef up an existing (but low) figure, there are simple steps you can take to improve your overall rating and make it easier to achieve your financial goals.

Read on to learn how your credit score works, with actionable strategies to improve your rating, and what to do next to access the best rates and terms.

First things first, what is a credit rating?

Your credit rating (or credit score) is a measure of your creditworthiness.

A good credit rating means you’re considered a low-risk borrower, while a poor credit rating means that you are considered a high-risk borrower.

Lenders use your credit rating – typically shown as a three-digit number – to determine whether to approve your loan application, how much they should lend you, and at what interest rate.

Think of your credit rating as a snapshot of your financial reliability right now (it’s not set in stone) that potential lenders use to make three primary decisions:

Approval: Will lenders say “yes” or see you high-risk and reject your application?
Interest Rates: What rate will lenders offer you? A higher credit score typically results in the best rates.
Terms: Will lenders limit the amount you can borrow or the length of your loan? A higher credit score unlocks more favourable terms.

It’s worth noting that a poor credit score can make life harder even if you’re not applying for a car loan or personal loan. Many companies outside the banking world use your credit rating to make decisions.

Here’s a few you might run into:

Phone/Internet Providers: Applying for a new phone or internet contract can involve a credit check.
Real Estate Agents: Some property managers check credit reports to vet potential tenants (like finding a rental wasn’t hard enough already!).
Utilities: Even signing up for gas or electricity services can involve a quick look at your credit file.

How credit ratings work in Australia

In Australia, there are three major credit bureaus that compile and manage your financial report card.

Equifax (maximum score: 1,200)
Experian (maximum score: 1,000)
Illion (maximum score: 1,000)

Each of these reporting bodies uses slightly different formulas, so it’s normal for your score to vary across them.

FIDO SAYS: Don’t stress too much about your exact credit score. Whether you’re looking at a car loan or equipment for your business, lenders care more about the category you’re in, so just focus on staying in the highest category possible.

Equifax (max. 1,200)	Experian (max. 1,000)	Illion (max. 1,000)	Rating Category
853 to 1,200	800 to 1,000	800 to 1,000	Excellent
735 to 852	700 to 799	700 to 799	Very Good
661 to 734	625 to 699	500 to 699	Good/Average
460 to 660	550 to 624	300 to 499	Room for Improvement

What’s the average credit score in Australia?

According to data from Equifax, the average credit score for Australians is 861. This puts most Aussies in the ‘Excellent’ category while women (896) have a higher credit rating than men (882).

And if you want to match (or beat) those credit scores, keep scrolling for our tried-and-tested tips.

What’s included in a credit report?

A credit report is a document produced by one of Australia’s main credit reporting bodies (Equifax, Experian or Illion).

Your credit report is used by lenders (think banks, credit unions, car dealers or finance companies) to assess the creditworthiness of your application for loans, credit cards, and other credit products.

More than just your credit rating, here’s what’s included in your credit report:

Personal Info: Name, date of birth, current/previous address, and driver’s licence details.
Credit Accounts: This includes all types of credit you hold (e.g., credit cards, car loans, or home loans), credit limits, and the dates your accounts were opened/closed.
Repayment History: A 24-month snapshot of whether you paid your required minimum amount on time each month.
Credit Enquiries: A list of every time you applied for credit (this could be anything from a travel loan to a credit card or even a phone contract) in the last five years.
Defaults: Any debt over $150 that was overdue by more than 60 days will stay on your credit report for five years.
Legal/Public Records: Records of bankruptcy or court judgments.

Key factors that influence your credit score

We don’t need to be mind readers to know you’d be stoked to move into the ‘Excellent’ credit score category.

Whether you’re planning to apply for a car loan or just want the flexibility that a stronger credit score brings, here are the five critical areas to focus on.

#1 - Payment history

This has the biggest impact on your credit score.

Consistently paying bills and loan instalments on time is the single best thing you can do for your score. Late payments on anything from utility bills to credit cards are major red flags.

💡 ACTION STEP: Make your repayments on time, every time. Super simple but super effective.

#2 - Credit balance vs. utilisation

This is a fancy way of saying that lenders pay attention to the difference between good debt and bad debt by looking at how much credit you use versus how much you have available (known as your credit limits).

For example, constantly maxing out your credit card shows a heavy reliance on credit and can lower your credit score.

💡 ACTION STEP: Aiming to maintain a credit card balance well below the available limit can show lenders you have room to move and aren’t stretching yourself too thin.

#3 - Length of credit history

An older credit history is usually seen as a more stable credit history.

For example, an 18-year-old first-time borrower will have a thin credit file compared to a 48-year-old who has made regular mortgage payments and has paid off multiple car loans.

💡 ACTION STEP: Focus on managing multiple credit accounts but make sure you can meet your repayments (without snowballing into debt) to show lenders you’re a versatile and responsible borrower.

#4 - Credit mix

A blend of different credit types shows lenders that you can manage different financial products effectively. This includes revolving credit (like credit cards) and instalment loans (like personal loans, car loans, and home loans).

💡 ACTION STEP: Don’t stress if you’re just starting out. Time is your best mate. Your credit rating will improve as your credit file ages, so you’re not stuck with a low score forever.

#5 - Credit enquiries

There are two types of credit checks.

Soft credit checks: These checks aren’t recorded in your credit history. For example, checking your credit score online to see where you stand.
Hard credit checks: These checks are made when you formally apply for a loan and can impact your credit score.

Hard enquiries are listed on your credit report for five years. This matters because making multiple applications to a handful of lenders in a short timeframe can suggest you’re desperate or have been rejected elsewhere.

💡 ACTION STEP: Lenders dislike the “shotgun” approach to loan applications. To protect your credit score, go with the pros. At Fido Finance, our experts access 30+ lenders and only make applications that work for you, so you avoid unnecessary hard enquiries that damage your score.

Simple strategies to improve (and maintain) a strong credit rating

✅ The DO'S (Start on these today)	❌The DON’TS (Avoid at all costs)
Pay your bills on time: Use direct debit or calendar reminders for every payment so nothing falls through the cracks.	Don’t apply for multiple products: Resist the urge to shop around on your own which can look risky to lenders.
Keep credit card balances low: Pay off your credit cards fully. If you can’t do that, try to keep the balance well under the available limit	Be cautious when co-signing a loan: Becoming a guarantor on a loan means someone else’s mistakes become your credit problems.
Settle defaults ASAP: If you’ve got an old default, contact the creditor and negotiate a payment plan or settle the debt. This is listed as 'Paid,' which looks better to lenders.	Never ignore past problems: Defaults and late payments don't disappear just because you ignore them (even if that would be nice) so address defaults quickly for the best long-term results.
Use credit responsibly: Use a mix of credit types (like a car loan and a credit card) and manage them well by making repayments on time.	Closing old accounts can hurt you: Closing an old, well-managed credit card can shorten your credit history length, which can sometimes drop your score.
Check your report: Get a free copy of your report annually and check for errors. Dispute anything incorrect.	Don’t let your details go unchanged: Ensure all your contact info is up-to-date with creditors, so you never miss a notice.

Let’s sum up everything we learned (and what to do next)

You made it this far – congratulations. 🎉

That means you’re serious about accessing better rates and terms on your next loan.

Remember, the higher your credit score, the more options you have to achieve your goals, whether that’s upgrading your car, consolidating debt, or buying a new home.

By taking the shortcut and applying through Fido Finance, you’ll have access to a panel of 30+ lenders. Paired with our experience, you can minimise the impact on your credit score and enjoy the easiest path to approval.

If you’re ready to make your current credit score work harder, get in touch for help navigating your credit rating or applying for a loan.

Visit us online or call the team now at 13 FIDO (13 34 36).