When you apply for a home loan, lenders like to form a picture about how well you’ll be able to manage the loan repayments.

To build this picture, banks use several pieces of information. One of them is your credit score. This is a number, usually between zero and 1,000 or zero and 1,200 based on your personal credit report. The higher your score, the more you have demonstrated a history of financial responsibility.

If you’re not familiar with credit reports, they show the type of credit products you’ve held in the last two years as well as your normal repayments, and most importantly, how well you’ve kept up with those repayments.

Understandably, banks are interested in these details.

Your income doesn’t impact your credit score

Despite credit scores being an important indicator of our credit health, Aussies are often unsure about what goes into their credit report.

One in five people mistakenly believe that personal details like marital status, personal income, and even traffic fines are included.

In fact, none of these details will impact your credit score. Not even your income.

Income is important – just not towards your credit score

That’s not to say lenders aren’t interested in what you earn – far from it. Banks will want to see details of your income to be sure you can manage loan repayments.

However, your income is not included in your credit score, and there’s a good reason for this.

Your credit report is a snapshot of your credit history and current credit health. It’s designed to show how financially responsible you are, and if you think about it, how much you earn doesn’t necessarily have a bearing on how well you handle debt.

A high income earner may be no better (and could even be worse) at managing credit than someone on a lower income.

The upshot is that you may not have to wait for a pay increase to apply for a home loan. One in three of us think a pay rise will boost our credit score. But that’s not the case.

Check your credit score regularly

Credit scores are considered when assessing credit applications. So, if lenders want to see your score, you should check it out too.

Head to sites like CreditSavvy where you can review your credit score on a regular basis at no cost. Or go straight to Aussie who can help you understand what your credit score is telling lenders about you.