Your credit score is a major factor when determining your loan eligibility for a personal loan.
It is not the only factor assessed before an approval, but it’s often needed to get your foot in the door and get eyes on your application.
By proactively taking steps to improve your credit score in the months leading up to your application, you are maximising your chance of securing the funds you need.
If you ignore this, you risk a rejected application and further damage being done to your credit file.
In this article, we will discuss what steps you can take today to improve your credit score before you apply for a personal loan.
7 Ways to Improve Your Credit Score
Anyone can improve their credit score over time by keeping up to date with the repayments on any outstanding debt and avoiding unnecessary consumer credit.
However, you may not realise everything that could contribute to movements in your credit score.
Not every item below will apply to your situation, but even one can make a difference if you modify your financial habits to improve the outcome.
1. Current Repayment History
Your Credit Report will usually show the current status of your debts, and the last two years of repayment history.
If you have missed a payment in the past, it may show here depending on how long it took to catch up.
While you can’t change the past, ensuring that every account is up to date now will help your chances of getting approved.
Every on-time payment can improve your credit score over time.
If you are not already set up with automated repayments for all of your debts, you should do so immediately to remove the risk of human error.
2. Pay Down Credit Cards
The amount of credit you have used on your credit cards can also be visible to lenders.
Your level of credit utilisation can influence your credit score, with consistently low utilisation being a positive factor.
High revolving balances can be an indicator of financial stress.
As you pay down the outstanding balance, you may see your credit score start to increase.
There are two elements that you can improve with any revolving credit balance:
- Paying down the balance before the statement date ensures a lower balance is reported to the bureau.
- As you pay down the balance, you can also reduce your credit limits to further de-risk your position.
A lower limit means you will also have more available cash to meet your new repayment obligations.
Another big plus!
3. Limit New Credit Activity
Every finance application records a hard enquiry on your credit file and can temporarily reduce your credit score.
Multiple applications in a short period of time can do serious damage.
Your best chance of improving your credit score is to avoid any new finance applications.
When you are ready to explore your MACC personal loan options, submit an application only when you are confident in your eligibility.
This saves unnecessary hard checks and preserves your score.
4. Minimise Reliance on SACC and Payday Lending
While sometimes necessary in an emergency, the frequent use of Small Amount Credit Contracts (AKA payday loans), or wage advance apps can hurt your personal loan application on multiple fronts:
- Multiple short-term credit enquiries can drag down your credit score.
- You could be instantly ineligible with some lenders who view frequent payday lending as a sign of financial stress.
If you have any current debts with payday lenders, try to repay them and keep a record that the accounts have been closed.
Transitioning away from SACCs toward MACC loans indicates you are a lower-risk borrower and will increase the number of options available to you.
Avoid applying for overlapping short-term loans to protect your credit score prior to applying for a larger personal loan.
5. Buy Now Pay Later Activity
Buy Now Pay Later (BNPL) applications were previously invisible to lenders until mandatory credit checks were introduced.
Under the recent Low Cost Credit legislation, lenders are required to make a credit enquiry before approving an application.
Your lenders will see this on your credit file, and overuse of BNPL services can hurt your credit score.
Avoid opening any new facilities to protect your file, and pay down any outstanding balances prior to submitting your application for a personal loan.
6. Pay Any Defaults
If you have previously defaulted on a payment obligation, your credit file could be marked with a default listing.
This will hurt your credit score and remain on your credit report for five years.
However, the status of the default will be updated to “paid” once settled.
The sooner you can do this, the faster your credit score will begin to recover.
Some lenders will consider applications with a newly paid default, and over time, your eligibility with more lenders will expand.
7. Audit Your Credit Report for Errors
Any negative detractors on your credit report that were listed in error could give you an immediate bump to your credit score once removed.
These systems are complex, and sometimes events can be allocated to the wrong individual.
There are also cases of fraud and identity theft that you may not even know about!
Scan your report immediately for any incorrect personal details, duplicate enquiries, settled debts listed as unpaid, or incorrect defaults.
If you find any errors, take the following action:
- Contact the Provider: Raise the issue with the credit provider first to request correction or removal.
- Lodge a Dispute: If unresolved, dispute the listing directly with the credit reporting body (e.g., Equifax).
- Escalate: Take the matter to the Australian Financial Complaints Authority (AFCA) or OAIC if they refuse to act.
Successfully removing these errors is one of the few ways to improve your credit file quickly.
Frequently Asked Questions
How long does it take to improve a credit score?
Quick improvements are possible depending on your starting score and what the current detractors are. Easier improvements, like paying down high credit card balances and reducing limits, can boost your score in as little as 30 to 45 days. More serious negative events, like a default, take much longer to age out.
Is a good credit score enough to get approved for a personal loan?
Your credit file is only one part of the assessment. Lenders review your bank statements, income, and expenses to determine if you can afford to repay the loan and ensure the MACC product meets your requirements and objectives before final approval.
Should I improve my credit score before applying for a cash loan?
The higher your credit score, the more options you have when finding the best loan for your profile. If you have a low credit score, you may still be able to get a second chance personal loan or bad credit loan.
Improve Your Credit Score and Get Approved
You can generally improve your credit score through prudent management of your finances and developing a solid track record of debt reduction.
But most importantly, make sure there are no major negative events such as a default or current arrears.
If you have had credit problems in the past, you just need to get back on the right track and give it a little time.
You may be surprised how quickly your credit score can recover, and how soon you will be eligible for a personal loan.
If you are unsure whether your credit score is high enough, get in touch with the team at Gusto Cash.
We offer fast online approvals for MACC personal loans and can guide you through the application process to ensure you’re matched with the right finance option.
