Mythbusting — Does Having a Credit Card Improve Your Credit Score in Australia?

You may have heard that getting a credit card is a smart way to build your credit score. Do you remember where you heard it?

It might have been online, in a TV show, or from friends and family. The myth tends to go something like this: “You should get a credit card now that you’ve got a good job, it’ll help when you want to get a loan.”

In the US, that’s more or less true. But this is Australia. When it comes to credit cards and your credit score, things work a little differently here. Let’s bust this myth properly.

First, let’s get the basics straight

It’s easy to confuse two related terms: your credit report and your credit score. Your credit report is the full record of your credit history, think of it as your financial file. Your credit score is a number derived from that report, a quick snapshot of your creditworthiness at a point in time.

The organisations that hold these files are called Credit Reporting Bodies (CRBs). According to the Office of the Australian Information Commissioner (OAIC), are currently four in Australia: Equifax, Experian, Illion, and TaleFin.

Each CRB uses a different scale. Equifax scores run from 0 to 1,200. Experian runs from 0 to 1,000. This means the same person can have quite different numbers from each agency and that’s normal, not a mistake.

Not all agencies give you a number either. Some give a rating, ranging from “low” through to “excellent.” You can read more on our website on Credit Scores and at MoneySmart – Credit Scores and Credit Reports.

So where does the confusion come from?

It’s always worth checking your sources.

You may have seen on sites like Reddit that people share confusing and sometimes misleading information about credit scores, often despite the best of intentions. Much of it comes from applying American logic to an Australian system. Equifax and Experian are both US-headquartered companies, so it’s reasonable to assume they’d work the same way here. They don’t. In Australia they operate under frameworks that differ considerably from their US equivalents.

Here’s a useful illustration. The US uses the FICO scale, which runs from 300 to 850, a score cannot go below 300. In Australia, both Equifax (0 – 1,200) and Experian (0 – 1,000) start at zero, with an ‘excellent’ score generally being something above 800 depending on the credit agency. So, if you hear about someone saying “My credit score is 140,” first of all, that’s probably in Australia, and secondly, maybe they should see a financial counsellor?

In Australia, the credit reporting system has historically been negative-reporting focused. Bad behaviour – missed payments, defaults – was recorded. Good behaviour largely wasn’t.

For a long time, Australians were correctly told: not having a credit card is neutral. Having one and mismanaging it is harmful. That advice wasn’t wrong, it just isn’t the full picture anymore.

So what changed?

Something called Comprehensive Credit Reporting (CCR) was introduced gradually in Australia and became fully mandatory for major banks between 2018 and 2022.

Under CCR, positive repayment behaviour is now also reported. Consistently paying a credit card on time can build a positive repayment history over a 24-month period.

This is the basis of the argument that a credit card can help your credit score. And it’s real, but the key word is can. It depends entirely on how you manage it.

What can help your score:

• Paying on time, every month
• Paying in full, or more than the minimum
• Keeping your credit limit low
• Not applying for multiple cards in a short period

What will hurt your score:

• Missing payments (even once)
• Carrying high balances relative to your limit
• Having a large credit limit, even if unused, lenders see it as potential debt

One important caveat: CCR is mandatory for Australia’s major banks, but not all lenders participate. Credit Smart maintains a list of organisations that have signed up. It’s worth checking, as it may not include every lender you deal with. If your bank isn’t on the list, the positive repayment history you’re building with them may not be flowing through to your credit score in the same way.

For a clear explanation of how CCR works, visit Credit Smart.

A word on comparison sites

It’s easy to get misdirected online and that’s especially true here.

Comparison sites, the kind that rank and recommend credit cards, often tout the benefits of getting a credit card, including the claim that it will help you establish a good credit score. That’s not entirely wrong, but it’s not the full picture.

These sites have a conflict of interest. The companies whose products they compare pay to be listed. It’s in everyone’s commercial interest to make those products look appealing.

For unbiased information, stick to government and not-for-profit sources: MoneySmart and Credit Smart.

What does this mean for you as an ADF member?

ADF members often move frequently, which can complicate your credit history and future loan applications. Credit matters, whether you’re applying for a home loan at transition, renting in the civilian market, or simply setting yourself up well financially.

Here’s the good news: you do not need a credit card to have a good credit score in Australia.

Under CCR, paying your rent or mortgage on time, keeping up with utility bills, and managing any existing loans responsibly all contribute positively to your score. If you don’t have a credit card, your score isn’t suffering just because of that.

If you do have one, manage it well. Pay on time, pay in full where possible, and keep the limit low. Done right, it can give your score a modest boost over time.

The verdict: Qualified Myth

• MYTH – you need a credit card to have a good credit score in Australia.
• PARTLY TRUE – a well-managed credit card can now improve your score under CCR.
• TRUE – a poorly managed credit card will damage your score.

It’s even more true though that the best financial position is one that doesn’t rely on credit to function.

Also, don’t forget, you can check your credit score for free. You’re eligible for a free copy of your credit report from each CRB once every three months. Start at Credit Smart.

For more information, visit the Credit Score page on our website.