Secured loans (like home and car loans) are not automatically “better” for your credit score than unsecured loans – what matters most is how you use and repay any credit, not whether it’s secured or unsecured. Both types of loans are recorded on your credit report, and both can help or harm your score depending on your repayment history, how much you borrow, and how often you apply for new credit.
How Credit Scores Work
Australia uses comprehensive credit reporting (CCR), which means your credit report now includes both positive and negative information about how you manage credit. Credit reporting bodies such as Equifax, illion and Experian hold your report and may convert it into a credit score, typically ranging up to 1,000 or 1,200 depending on the bureau.
According to ASIC’s Moneysmart, your score is based on what’s in your credit report, including how much you’ve borrowed, how often you apply for credit, and whether you pay on time. Under CCR, your credit report can show the type of account (for example, home loan, personal loan, credit card), when it was opened and closed, your credit limit and up to 24 months of repayment history.
What Goes Into Your Credit Report
Your credit report typically includes:
- Personal details (name, date of birth, addresses, employer, driver’s licence)
- Credit products you’ve held in the last two years, e.g. home loans, personal loans, credit cards, business loans – with provider, credit limit, and open/close dates.
- Repayment history on eligible credit products for up to 24 months – whether you paid on time or missed payments by more than 14 days.
- All credit applications (including credit cards, personal loans, home loans and many Buy Now, Pay Later applications) for the last five years.
- Serious events like defaults, court judgements, bankruptcies and debt agreements, which can stay on your file for several years.
Importantly, the reports and official guidance focus on the type of product and repayment behaviour, not on whether that product is secured or unsecured.
Secured Vs Unsecured
A secured loan is backed by an asset that the lender can repossess if you don’t repay, such as a house for a mortgage or a vehicle for a car loan. Because the lender has security, these loans often come with lower interest rates and may allow higher borrowing limits than comparable unsecured loans.
An unsecured loan does not require collateral and is approved mainly on your credit history, income and overall ability to repay. Typically, unsecured credit includes personal loans, credit cards and many debt-consolidation loans, which usually charge higher interest because the lender is taking more risk.
Does Secured vs Unsecured Status Affect Your Score Directly?
Credit reporting bureaus and scoring models do not give you special “bonus points” purely for having a secured loan instead of an unsecured one. Credit reporting agencies do not distinguish between missing payments on a secured or unsecured credit when assessing your creditworthiness – a missed repayment is still a missed repayment.
What CCR does record is the type of account (home loan, personal loan, credit card and so on), the limits and your repayment behaviour, rather than whether that account is secured by an asset. Lenders look at your applications, how much debt you already have, your repayment history and any defaults, not at security status as a separate scoring factor.
How Secured Loans Can Indirectly Help Your Credit Profile
Even though “secured” as a label is not rewarded on its own, secured loans can support your credit profile in indirect ways:
- Lower interest and structured repayments: Secured loans often have lower rates and fixed instalments, which can make it easier to budget and pay on time – a key driver of a good score under CCR.
- Larger, long-term accounts with consistent history: Home loans and car loans are usually larger, longer-term commitments, so a track record of on-time payments over years can be powerful positive data on your file.
- Accessibility if your score is weaker: Because security reduces the lender’s risk, some secured products may be available to borrowers with lower scores, where unsecured credit might be declined or only offered at higher interest rates.
From a lender’s perspective, paying off a secured instalment loan like a car or a home loan on schedule shows you can handle significant commitments responsibly, which may support future applications even if your numerical score doesn’t jump overnight.
How Unsecured Loans Can Pose Extra Risks
Unsecured credit can still be used responsibly and help build your credit history, but it usually carries a higher risk if mismanaged:
- Higher interest rates: Unsecured personal loans and credit cards tend to charge higher interest rates, which can make balances harder to clear and increase the chance of missed payments if your budget is tight.
- Revolving credit and high utilisation: Credit cards (usually unsecured) allow you to reuse the limit. If you regularly owe a high proportion of your limit, this can be viewed less favourably than a steadily reducing instalment loan.
- Multiple applications and short-term products: Frequent applications for unsecured credit, including credit cards, personal loans, and Buy Now Pay Later, all appear on your report and can drag down your score if they suggest you’re relying heavily on borrowing.
Any missed or late repayment over a certain threshold (14 days past the due date) can be recorded and may stay on your file for up to two years. If the debt is more than $150 and overdue by more than 60 days, a default can be listed on your report for up to five years, regardless of whether the credit was secured or unsecured.
What Lenders Actually Look At
When you apply for credit, most lenders will check your credit report to understand your existing commitments and how you have managed debt in the past. Your credit report shows how many times you have applied for credit, which loans were opened, how much available credit you have and your repayment history.
Lenders use both your credit report and the information in your application – such as income, expenses and existing debts – to decide whether to lend, how much and on what terms. With CCR, banks can also cross-check undisclosed debts and limits, which means it’s more important than ever to be accurate and transparent on applications.
So, Which Is “Better” For Your Credit Score?
From a pure scoring perspective:
- A well-managed unsecured loan (or credit card) can help your credit score by showing timely repayments and sensible use of credit limits
- A well-managed secured loan, like a home or a car loan, does the same – it contributes positive repayment history and shows you can handle larger, longer-term credit.
- Missed payments, default, repeated late payments and lots of applications will harm your score on either type of credit.
In other words, neither secured nor unsecured loans are “inherently” better for your credit score; the crucial factor is using credit sparingly and paying everything on time.
This information is general in nature and is based on Australian rules and guidelines; it isn’t personal financial advice. For tailored help, consider speaking to your local broker, licensed advisor, or financial counsellor, and refer to ASIC’s Moneysmart resources.
