Many Aussies don’t know their credit score but it's often more about complacency than fear. If you have paid your bills, overdrafts and loans off pretty responsibly the chances are that your credit report is pretty healthy and that banks and other lenders will see you as a good risk.

In order to help your credit rating, you must be diligent with your financial commitments as much as you can. No-one is perfect, but if most of your payments are on time and you check your credit report frequently, you're demonstrating that you can deal with money pretty well. If you're about to apply for a personal loan, however, then you need to think about the negative consequences that it could have as well as the good.

Ideally, to avoid taking on more debt than you can comfortably handle, you should make sure you're looking for the best personal loans possible by using a personal loans comparison tool. These tools can help you to select a loan that suits you and gives you "wiggle room" for extra payments each month if you need to speed things up.

If you have an average or poor credit history, it can be tempting to take out a personal loan to ‘build your history up’, but here’s a few things you should know first.


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Low Rate Personal Loan Unsecured (Excellent Credit)

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No Fee Personal Loan

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Secured Residential Estate Personal Loan

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    Secured Personal Loan Fixed

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      Secured Personal Loan Fixed

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        Secured Personal Loan (NSW, ACT & QLD only)

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          Personal Loan Variable

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            Unsecured Personal Loan for Eligible Sustainable Purchases

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              Unsecured Personal Loan

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                Unsecured Personal Loan

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                  Unsecured Personal Loan (NSW, ACT & QLD only)

                    Important Information and Comparison Rate Warning

                    All products with a link to a product provider’s website have a commercial marketing relationship between us and these providers. These products may appear prominently and first within the search tables regardless of their attributes and may include products marked as promoted, featured or sponsored. The link to a product provider’s website will allow you to get more information or apply for the product. By de-selecting “Show online partners only” additional non-commercialised products may be displayed and re-sorted at the top of the table. For more information on how we’ve selected these “Sponsored”, “Featured” and “Promoted” products, the products we compare, how we make money, and other important information about our service, please click here.

                    The comparison rates in this table are based on a loan of $30,000 and a term of 5 years unless indicated otherwise. The comparison rates are for unsecured personal loans only for the relevant amounts and terms. The comparison rates for car loans and secured personal loans are for secured loans unless indicated otherwise. WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. Comparison rates are not calculated for revolving credit products.

                    Monthly repayment figures are estimates only, exclude fees and are based on the advertised rate for the term and for the loan amount entered. Actual repayments will depend on your individual circumstances and interest rate changes.

                    Rates correct as of April 21, 2024.View disclaimer

                    What will your credit report actually feature?

                    The good news is that credit reports have changed - for the better. If you haven't looked at or thought about your credit report since before 2014 then you'll be delighted to know that it doesn't just feature the bad news.

                    Order your credit report now and you'll find that it includes the good bits as well, like the fact you're prompt with your utility bills, credit card payments and any other loans or debts you have. It'll also feature information like your credit limits on your cards, as well as the sorts of bank and store accounts you've held in the past and whether you've closed them, maintained them or had them closed for you.

                    Good handling of credit cards, mortgages, rental agreements, insurance policies, phone bills and personal loans shows that you have a good grasp on finance and organisation. All of these factors are a huge help when it comes to applying for more, or entirely new, credit, including large and small personal loans.

                    This is part of what’s called Comprehensive Credit Reporting, or CCR, and while it’s more in-depth, it will also include credit enquiries such as applications for personal loans. This can feed in to your credit score.

                    Credit score range

                    illion

                    Equifax

                    Experian

                    Excellent

                    800 to 1,000

                    853 to 1,200

                    800 to 1,000

                    Very good

                    700 to 799

                    735 to 852

                    700 to 799

                    Average

                    500 to 699

                    661 to 734

                    625 to 699

                    Fair

                    300 to 499

                    460 to 660

                    550 to 624

                    Low

                    0 to 299

                    0 to 459

                    0 to 549

                    How can I get my credit report?

                    In Australia you can get your credit report for free once per year through one of the three main credit rating agencies - illion, Equifax, and Experian.

                    This is for an in-depth report, with all the nitty gritty of what’s on your file. This will count as a ‘soft’ credit enquiry on your report, and you’ll see it in your history.

                    If all you want to see is your score, various sites offer free credit score checks and they are usually powered by the big three agencies. Your banking app might also now feature a credit score checker, such as CommBank’s NetBank app.

                    How personal loans can affect your credit rating

                    Positive: Paying it off on-time and meeting repayment deadlines

                    Paying off your personal loan regularly and on time is good news for your credit rating. If you have a couple of late payments it's not a disaster, but if you're regularly missing repayments and you're gathering late fees and arrears charges, then you'll really hurt your score. 

                    If your payments are over $150 and they're more than 60 days late, you may be deemed to be in default which is very bad news indeed.

                    When you're applying for loans or any other sort of credit, you need to weigh up the benefits of paying it off on time against the risk of not being able to make the occasional payment when it's due.

                    Positive: Have a look at debt consolidation loans

                    One big way a personal loan can really improve a fledgling credit score is to consolidate your debts into one loan and pay it off.

                    This is also a psychological ploy as well, as having multiple debt bills can add to your stress, and if you’re really behind, it can be a minefield trying to decide which one to prioritise. Having one bill eliminates that stress.

                    There are plenty of personal loans designed just for consolidating debts. You can pay off your credit card, store cards and other loans with one debt consolidation personal loan. A demonstrated history of getting on top of your finances and steadily repaying one personal loan can go a long way in repairing your credit score.

                    However you’ll also need to keep in mind that a debt consolidation loan is essentially another loan. You want to use this opportunity to get on top of your finances, not add to the debt burden. Avoid taking on any new debt or making big purchases on your credit card.

                    Positive: A thin credit file is better than a bad credit history

                    If you’re new to the finance world, such as a recent immigrant or student, it can be tempting to think you need to ‘built up your credit’ and get a personal loan. While it is true it will beef out your history, it might not be for the better.

                    A home loan lender or secured car loan lender would rather you have a thin file and an average score, rather than a beefy book of multiple personal loans in a short timeframe and multiple credit cards, or applications and rejections.

                    Further, if you’re new to Australia or a student, there’s every chance you could be knocked back for credit because you don’t have a solid income history - this doesn’t reflect well in your credit report.

                    You might be surprised to know you can build your credit history by paying off your phone plan and energy bills on-time.

                    Neutral: Paying off personal loans early doesn't help

                    You might think that paying off your personal loan earlier than you agreed looks good on your credit rating, but it doesn't actually make any difference. You may have decided to bring some personal loan credit into your finances to show how well you deal with instalment credit over a longer period of time, so ending the agreement (even on a high note) defeats the purpose. The longer and more consistent your record of paying down your debts is, the better your score will be.

                    If you're feeling overwhelmed by your loans or if your circumstances change, then paying your loan off early is more important than your credit rating. You should aim to make additional payments each month, or pay off a big chunk with a bonus from work or similar, just to reduce the balance and the interest you'll ultimately pay.

                    Negative: Don't keep applying for loans

                    Another important thing to remember, when it comes to applying for unsecured or secured personal loans, is that each application you've made in the last five years goes on your file as hard credit enquiries. If you've been approved and handled the subsequent loan well, then your rating will probably be good enough to get some really great personal loan rates.

                    If you tend to get your applications (or enquiries) rejected, then your rating will drop and you should avoid further applications until you identify the reason for rejection and take steps to rectify it. Steps for rejection could include not having steady income, or if you have had a change in personal circumstances in the past few months, such as a new job, a baby, or a home purchase.

                    Negative: Don’t add to your debt burden and miss repayments or default

                    It can be tempting to apply for a personal loan to build up your credit history. However you’ll need to see how it works into your budget with a personal loan calculator.

                    Further, you’ll also want a solid purpose for taking out a personal loan beyond just enhancing your lifestyle or buying a lot of frivolous items. Personal loans are commonly used for home renovations, vehicles, holidays, and weddings.

                    It’s no use taking one out then realising you can’t fit it into your budget, falling behind on repayments then defaulting. This defeats the whole goal of ‘building up your credit file’.

                    You will also need to consider that you’re paying interest. This can add up to thousands of extra dollars over the life of the loan. Unless you’re using a personal loan for a big expense, consider if that money spent on interest could be better directed elsewhere.