Your credit score is an assessment  of your credit and borrowing history that is made by a credit reporting body. When you apply for a loan, most lenders take your credit score into consideration when assessing your application to borrow funds. Higher credit scores can show a lender you’re reliable, which can sometimes increase the likelihood of your home loan application being approved.

If you’re considering applying for a home loan and are interested in how to improve your credit score in preparation, there are a few practical ways you can go about it. 

How your credit score is worked out

Understanding what makes up your credit score can help you better understand your own financial situation and sort out areas for improvement. You can request a copy of your credit report – which shows your credit and borrowing history in detail – for free through credit reporting bodies like Experian, Equifax and Illion.

Depending on the credit reporting agency, information on your credit report can include any of the following:

Identification information: personal details like your name, date of birth and any changes of address will be included, together with other information such as employment history.

Credit accounts: credit you’ve used could be listed, including the credit limit, type of account and when it was opened and closed.

Applications for credit: your report lists enquiries made for credit. This can include home, car and personal loans, as well as credit cards, interest-free store finance and contracts like your phone, internet and electricity.

Repayment history: repayments on your credit accounts may be visible, including months you weren’t able to meet your minimum repayments. Your overdue accounts, default payments and any bankruptcies may also be visible.

This data is converted into a ‘score’, which will range from zero up to 1,200 depending on the credit reporting agency you enquire with. Higher scores are better, so the higher your score, the stronger your chances are of being approved for credit. 

Suggestions for potentially improving your credit score 

If you’re considering applying for a mortgage in the future, there are a few simple strategies you could consider right now to improve your credit score. 

Pay your bills on time

Your gas bill and credit score might seem unrelated, but the opposite is true. If you don’t pay a bill on time, your utilities or service provider may report your late payment as a default if the amount you owe is over $150 and more than 60 days overdue. Your provider will usually tell you about late payments before they’re reported, though.

Consider hardship assistance

Defaults can add up and impact your credit score quickly, so if you’re having trouble keeping up with your payments, consider reaching out to your provider and applying for hardship assistance. If your hardship assistance application is accepted, the request can’t be recorded in your credit report.

Start organising

Improving your score – and keeping it high – requires good financial planning and organisation. Using a calendar can help you set specific reminders for upcoming bills and repayments that are difficult to miss. Regularly checking a calendar or your phone or fridge is a great way to keep your finances front of mind.

Check your credit report

Credit reports aren’t always 100% accurate. While checking your report – which, remember, you can request for free – always look for inconsistencies. If you find something out of place, contact a credit reporting body or the relevant credit provider and let them know about the issue. If it’s verified and fixed, your score can improve.

Check your credit report

Credit reports aren’t always 100% accurate. While checking your report – which, remember, you can request for free – always look for inconsistencies. If you find something out of place, contact a credit reporting body or the relevant credit provider and let them know about the issue. If it’s verified and fixed, your score can improve.

Don't rush into credit and loan applications

It might seem harmless, but every application you make for a credit card or loan could show up on your report. If you make a habit of it in the lead-up to a mortgage application, it may raise red flags for your lender. Even if you’re well-positioned financially, too many applications can make you look financial unstable.

Change up your approach to credit cards

If you’ve got a few credit cards on the go, it may help to close any credit cards you don’t use. Don’t feel pressured to cut all your cards up – focusing on a single credit card can streamline financial management by helping you focus on a single line of credit. You can also consider lowering spend limits to minimise debt in the leadup to your mortgage application.

Start now to improve your credit score for the future 

It can take some work and time, but improving your credit score can help you look more appealing to lenders when you apply for a home loan.

If you have questions about your borrowing options, we’re happy to lend a helping hand. Our home lending experts can help you understand your options and all consultations are 100% obligation-free.

Talk to a home loan expert

Published 4 August 2022