Australian Credit Scores

Social media ‘Finfluencers’ scream at young people to ‘get a credit card to start building a credit score’. It is a financial trick touted by many misinformed young Australians. While this may be true in the U.S. it doesn’t apply the same way in Australia. America calculates credit scores completely differently than Australia.

The internet is overflowing with financial advice tailored to Americans. An entire industry of ‘Finfluencers’ has sprung up, offering advice through blogs, podcasts, and YouTube videos. There’s no shortage of content. From Caleb Hammer advising guests to cut back on takeout spending to Dave Ramsey criticizing young people for their student loan debt, there are hours of content. Unfortunately, this wealth of advice doesn’t always translate to Australia. In comparison, the Australian ‘Finfluencer’ scene is smaller and often dominated by property experts pushing overpriced courses with little substance. This lack of relevant content can be frustrating, especially given the strict regulations that limit financial advice in Australia. As a result, many Australians turn to U.S.-based content that simply doesn’t apply to their financial situation.

A key difference between American and Australian financial systems is how credit scores and credit cards impact borrowing. Credit scores work very differently in each country. In Australia your maximum borrowing capacity matters. Taking out a credit card only reduces that maximum. In America, it can improve your score by showing you can manage small debts. In Australia, lenders focus on your maximum borrowing capacity. Instead of helping your credit score, taking out a credit card actually reduces that amount. Generally speaking if a bank determines you can borrow up to $500,000, but you take out a $10,000 credit card, your new borrowing limit drops to $490,000. It doesn’t matter if you’ve spent anything. Simply having the credit card reduces your capacity. In the U.S., lenders see a $10,000 credit card with no missed payments as proof of responsible credit use, making them more likely to lend you more. This means that while opening a credit card in America can help you build credit, in Australia, it can work against you. This is especially true if you’re trying to qualify for a mortgage.

In Australia, “building” a credit score isn’t as important as it is in the United States. Australian lenders focus on free cash flow, while U.S. lenders prioritize your history of managing debt. In Australia, banks assume that good budgeting leads to enough cash to cover debts. In the U.S., a long history of successfully managing debt signals creditworthiness. Australian banks want to see that you have excess cash from your paycheck, ensuring you can afford the new loan. They assess your spending habits to determine whether you manage your money responsibly. Put simply, banks prefer lending to someone with consistent savings rather than someone living paycheck to paycheck. One major issue when applying for home loans for young Australians is their online gambling habits. Banks don’t like these types of transactions at all.

That doesn’t mean credit scores are irrelevant in Australia. We still use them, but mainly as a risk assessment tool. Late payments and defaults can severely damage your credit score, making it harder to borrow in the future. In Australia, the main purpose of a credit score is to signal risk to lenders, helping them limit their liability. In contrast, the U.S. relies on credit scores for far far more.

In the U.S., your credit score isn’t just for loans. It can also affect job applications and rental approvals. Imagine handing your employer a record of every late bill you’ve ever paid. That’s essentially what happens in America. In Australia, this simply doesn’t happen. In the U.S., financial mistakes from your youth can follow you for years. Credit scores there can feel like a social ranking. Miss a payment, and people may see you as irresponsible. People with poor credit may be locked out entirely from the best jobs and rentals.

If you’re preparing for a mortgage in Australia, keeping your expenses low is key. Think of it as Australia’s version of proving creditworthiness. Banks focus on how much money you have left after paying your regular bills. They’re hesitant to lend to someone with multiple ongoing financial commitments. A phone plan is one of the few ways to demonstrate serviceability in Australia. It proves you can reliably manage essential bills, but missing payments defeats the purpose and can hurt your score. An average credit score won’t stop you from getting a mortgage, but a bad one will. Avoiding defaults and missed payments is crucial.

Always remember that not every piece of financial advice you hear on TikTok applies to Australia. In fact, much of it is tailored to the U.S., where credit scores, borrowing power, and financial systems work very differently.

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The contents of this Article are general in nature and do not constitute financial advice.