How to Improve Your Credit Score Before Applying for a Loan in Australia

Your credit score plays a big role in how lenders see you, and it can make a real difference to the types of loans and interest rates you’re offered. Whether you’re buying your first home, upgrading or investing, taking the time to boost your credit score can put you in a stronger position when it’s time to apply.

In this guide, we’ll walk you through simple, practical steps to help lift your credit score and give yourself the best shot at securing a great loan deal. Let’s dive in.

What Is a Credit Score and Why Does It Matter?

Your credit score is a number between 0 and 1,200, depending on the credit reporting agency, that reflects your financial reliability. Lenders use it to assess how risky it might be to lend you money.

In Australia, the three major credit reporting bodies, Equifax, Experian and illion, compile your credit information based on your borrowing and repayment history. Generally:

• A score above 800 is considered excellent,

• 700 to 799 is very good,

• 625 to 699 is good,

• 550 to 624 is fair,

• Below 550 is below average.

The better your score, the more confidence lenders have that you’ll repay your loan on time.

How to Improve Your Credit Score Before Applying for a Loan

Your credit score doesn’t just affect whether you get approved. It can also influence how much you can borrow and what your repayments look like. Taking a few smart steps early can make a real difference when it’s time to apply for a loan.

1. Check Your Credit Report Early

Before you start the loan application process, it’s important to review your credit report. You're entitled to one free copy per year from each of the main agencies.

Look for:

• Errors in your personal details

• Accounts or debts you don't recognise

• Repayment history inaccuracies

• Outdated defaults

If you find a mistake, contact the credit reporting agency or the relevant lender to have it corrected. Fixing an error could immediately lift your score.

2. Pay Your Bills on Time, Every Time

Your repayment history, including payments for credit cards, loans, utilities and phone bills, is critical. Even a single late payment can leave a mark on your record for up to two years.

Tip: Set up direct debits or reminders to ensure your bills are paid by the due date.

3. Reduce Credit Card Balances and Limits

Credit cards can impact your credit score, not just based on what you owe, but on the limits you have. High available credit can be seen as potential debt you could draw on.

Action Steps:

• Pay down your existing balances as much as possible.

• If you have cards you rarely use, consider lowering the limit or closing the account.

4. Avoid Multiple Loan Applications

Each time you apply for credit, a 'hard enquiry' is recorded on your credit file. Too many enquiries, especially over a short time, can harm your score and make you look desperate for credit.

Best Practice: Only apply for credit when you're serious and avoid shopping around with multiple lenders at once.

5. Clear Outstanding Debts

If you have any overdue debts or defaults, address them as a priority. Settling outstanding debts, even if they are small, shows lenders that you take financial obligations seriously.

Important: If you can’t pay a debt in full, reach out to the creditor to arrange a manageable payment plan.

6. Keep Your Older Accounts Open

A longer, well-managed credit history can boost your credit score. If you have old credit cards or accounts that you manage well, keeping them open could be beneficial. However, make sure they are low-cost (no high fees or charges) and aren't tempting you to overspend.

7. Manage Buy Now, Pay Later Services Carefully

Services like Afterpay and Zip Pay are very popular in Australia, but mismanaging them can hurt your credit score.

Tips:

• Never miss payments.

• Only use buy now, pay later services if you can comfortably manage repayments.

• Treat them with the same discipline as you would a credit card.

How Long Does It Take to Improve Your Credit Score?

Improving your credit score is a gradual process. Minor changes might reflect within a few months, but significant improvements usually take six to twelve months, depending on your financial habits.

If you're planning a major loan application (such as a home loan), it's wise to start working on your credit score well in advance.

Final Thoughts

At Richmond Residential, we believe that preparation is key to successful property ownership. Improving your credit score before applying for a loan not only increases your chances of approval but could save you thousands over the life of your loan.

If you're unsure where you stand or need assistance with your home loan application, our experienced team is here to help guide you every step of the way. Get in touch today and let’s make your property dreams a reality.