Most people talk about “my credit score” as if it’s one fixed number. It isn’t. Once you understand what a score actually is and how it’s built, a lot of finance decisions get easier — including some that surprise people. This is the mechanics companion to our guide on how to improve your credit score; that one covers what to do, this one covers how the number actually works.
There isn’t just one credit score
Different lenders go off different scores. Not just different credit bureaus — Equifax, Experian and illion each hold their own file on you — but often different score versions from the same bureau. One lender might use one Equifax score product, another a comprehensive version, others a completely different bureau again. They’re each calculated in their own way, using their own weighting of what’s on your file. That means you can genuinely have a poor score on one measure and a strong score on another, at the exact same time, from the exact same set of facts.
This matters more than it sounds. Your “typical” score — the one that maybe 80% of lenders happen to use — might sit low enough to make finance expensive or difficult. Meanwhile another one of your scores could be sitting comfortably in the green, and there might be one or two lenders in the country who go off exactly that score. Knowing which score is which, and which lenders use which, is a broker’s job — and it directly changes your borrowing power, both for the deal in front of you and for what you can get approved for down the track.
Where a score starts and ends
A newly opened credit file typically starts around 600. The maximum on most scales is 1200. So 600 is decent but nowhere near great — and it doesn’t drift upward on its own just by sitting there. A score moves down when you rack up enquiries, and it moves up with a track record of good repayment history. Some lenders price by score — a higher score can mean a cheaper deal on certain products — while most simply set a minimum gate: meet it and the score itself stops being the issue. Either way, there’s no version of this where a better score is a bad thing. It only ever helps.
A good score comes from good history, not from having none
There’s a common myth that no loans and no credit cards means a great score. It doesn’t — with nothing on the file, the score just sits there, unproven. The way a score actually climbs is reputable credit that makes sense for your situation (not ten applications in a fortnight) combined with repayments made on time, no exceptions, not a single day late. Products like a mortgage, a car loan, a truck loan, a business loan or a credit card report to the credit agency every single month — paid on time, yes or no — and every “yes” nudges the score up a little further.
Why buy-now-pay-later is all downside
Buy-now-pay-later providers — Zip, Afterpay, Klarna and the rest — make an enquiry on your credit file when you sign up, but they don’t open the kind of account that reports your repayments back to the bureau. So every on-time BNPL payment you make reports back nothing at all. You wear the negative (the enquiry itself, and the way a BNPL account looks on your file) and get none of the monthly positive reporting a real loan or credit card would give you for the same good behaviour. It’s a lose-lose on your file, structurally. See our BNPL section in the improve-your-score guide for the full warning, including the dormant-account trap.
Personal and business: one file, both directions
For business lending, the main thing lenders go off is the director’s personal credit file, not a separate “business score.” Being perfectly on time with the business loan doesn’t cover you if you’re late on your personal loan, your mortgage, or you’ve got a Zip or Cash Converters mark sitting there — a lender sees all of it, and all of it matters.
It runs both ways, too. How you handle the business’s repayments feeds back into your personal score as well — which matters later when you want a personal credit card, or more importantly, a mortgage of your own. There’s no wall between “the business” and “me” on a credit file: negative conduct on one side damages the other, and positive conduct on one side lifts the other. On-time repayments, every time, on either side, drive your personal score up month by month.
Want to know which of your scores actually matters?
Because different lenders read different scores, the number you’ve seen on a free credit app might not be the one that decides your deal. We can check what actually applies to the purchase you’re planning without it costing you an enquiry — see our guide to shopping for finance without wrecking your credit file for how that works.
Have a question about your deal?