Your credit score plays a significant role in determining your eligibility with most personal loan lenders.
While it is not the only factor (your bank statements are just as important), a decent credit score is needed to get your foot in the door and get human eyes on your application.
By proactively taking steps to improve your credit score in the months leading up to your application, you maximise your chances of securing an approval.
If you ignore this and apply anyway, you risk a swift rejection and a new hard enquiry that may hurt your credit report even further.
In this article, we will discuss what steps you can take today to improve your credit score before you apply for a personal cash loan.
Find Your Current Credit Score
You can get your current credit score for free directly from the Equifax website, or through various free consumer finance apps.
Below is a rough guide on how this score could be interpreted. However, all lenders have their own scale for what they will consider within their credit policy.
- Very Bad Credit – <200
- Bad credit – 200 to 400
- Fair credit – 400 to 600
- Good – 600 to 800
- Very good – 800+
If you are in the lower ranges then there is room for improvement if you start taking action today.
Ways to Improve Your Credit Score Immediately
Anyone can improve their credit score over time by keeping up to date with repayments and avoiding unnecessary consumer credit.
The following methods focus on items that impact standard credit files right away and do not rely on your day-to-day repayment history.
Limit New Credit Activity
Every formal finance application records a hard enquiry on your credit file.
This signals to other lenders that you are seeking more debt, which temporarily reduces your credit score.
Submitting five applications in a single weekend can do serious damage to your credit file in the short to medium term.
Your best chance of improving your credit score is to minimise all new finance applications and be selective when you apply.
Avoid Payday Loans (SACCs)
While a MACC is a regulated personal loan, applying for ultra-short-term payday loans (known as Small Amount Credit Contracts) can hurt your credit profile on multiple fronts.
A high frequency of SACC applications heavily damages your credit score.
Furthermore, the presence of payday loans on your bank statements makes you instantly ineligible with many mainstream lenders, regardless of how high your credit score is.
Focus on repaying them immediately and closing the accounts to protect your score prior to applying for a larger personal loan.
Buy Now Pay Later Activity
Historically, Buy Now Pay Later (BNPL) accounts like Afterpay and Zip were invisible to lenders.
However, credit regulations now require BNPL providers to conduct credit enquiries before approving limit increases.
Excessive BNPL use is now highly visible on your credit file.
Relying on multiple BNPL accounts simultaneously signals cash flow stress and will drag your score down.
Pay down any outstanding balances and close duplicate accounts prior to submitting an application for a cash loan.
Pay Any Defaults
If you have previously defaulted on a payment obligation and ignored the lender’s warnings, your credit file will be marked with a formal default listing.
This will shatter your credit score and remain on your report for a full 5 years.
However, if you clear the debt, the status of the default updates from Unpaid to Paid.
While the mark remains, a paid default looks significantly better to a prospective lender, and your credit score will slowly begin to recover.
Rebuilding Credit via Comprehensive Credit Reporting (CCR)
The following methods specifically rely on Comprehensive Credit Reporting (CCR).
It is worth noting that Gusto Cash does not participate in CCR.
We operate on a negative credit reporting model, meaning we only report long-term defaults rather than tracking your month-to-month repayment schedule.
However, if you have other active accounts with major banks, credit card providers, or mainstream lenders who do use CCR, these steps will help rebuild your overall bureau score over time.
Your Current Repayment History
Your CCR profile shows the current status of your open debts and your last 24 months of repayment history with participating lenders.
If you have missed a payment with a CCR lender in the past, it will show as a 14-day late payment marker.
While you cannot change history, ensuring that every single CCR account is up to date now will help your score.
Every on-time monthly payment gradually pushes the old late payments further into the past, rebuilding your credit score step by step.
Set up automated direct debits to remove the risk of human error.
Pay Down Credit Cards and Reduce Limits
The amount of available credit you have used on your credit cards is tracked dynamically by lenders participating in CCR.
Your level of credit utilisation heavily influences your score.
Consistently maxing out your credit cards is an indicator of financial stress.
As you pay down the outstanding balance, you will see your credit score start to increase.
You can improve this by paying down the balance a few days before the statement date so a lower balance is officially reported to the bureau.
Once paid down, consider reducing your overall credit limit. Unused limits are viewed by mainstream lenders as potential debt you could max out tomorrow.
Frequently Asked Questions
How long does it take to improve a credit score?
Quick improvements are possible depending on your starting position. Fixes like paying down high credit card balances, closing BNPL accounts, and reducing credit limits can boost your score in as little as 30 to 45 days. More serious negative events, like waiting for a default to age out, can take years.
Is a good credit score enough to get approved for a cash loan?
No. Your credit file is only one part of the assessment. Responsible lending laws require cash lenders to securely review 90 days of your bank statements. If your credit score is perfect, but your bank account is constantly overdrawn and full of dishonour fees, your application will be declined for affordability.
Should I wait to apply for a personal loan?
If you have recently been declined, yes. Give yourself a 90-day “reset” period. This allows time for recent hard enquiries to age slightly, and gives you exactly three months to build a perfectly clean bank statement history to show the next lender.
Improve Your Credit Score and Get Approved
You can generally improve your credit score through prudent management of your finances and developing an impeccable track record of debt reduction.
If you have had credit problems in the past, you just need to get your budget back on the right track and give it time.
You may be surprised how quickly your credit score can recover, and how soon you will be eligible for a personal cash loan again.
Regardless of any past problems, the team at Gusto Cash is ready to assess your application fairly based on where you are at today.
Click below to get started.
