How to Improve Your Credit Score for a Mortgage
Actionable steps to boost your credit score and improve your borrowing power before applying for a home loan.
Your credit score significantly impacts mortgage approval and interest rates offered. A score above 700 opens doors to better rates and higher borrowing capacity, while scores below 500 may result in decline. Fortunately, credit scores can be improved with strategic actions over 3-6 months.
Understanding Credit Scores in Australia
Australian credit scores range from 0-1,200 (Equifax), 0-1,000 (Experian), or -200 to 1,000 (illion). Scores above 700 are considered "very good," 500-700 "average," and below 500 "below average." Lenders use scores alongside other criteria to assess risk and determine interest rates offered.
Check Your Credit Report First
Get free credit reports from Equifax, Experian, and illion to identify issues. Look for: incorrect personal details, accounts you didn't open (fraud), paid defaults still listed, or credit inquiries from applications you don't remember. You're entitled to one free report per agency every three months.
Pay All Bills on Time
Payment history heavily influences your score. Set up direct debits for loan repayments, credit cards, utilities, and phone bills. Even a single missed payment can drop your score 20-50 points. If you've missed payments, get current and stay current for at least 6 months before applying for a mortgage.
Reduce Credit Card Limits
Lenders assess credit card limits as potential debt when calculating borrowing capacity. A $10,000 limit reduces borrowing power by $30,000-$40,000, even with zero balance. Call creditors to reduce limits to your actual usage ($2,000-$3,000). Close cards you don't use—keeping one card shows credit management ability.
Avoid Multiple Credit Applications
Each credit application creates a hard inquiry on your report, temporarily lowering your score. Multiple applications in short timeframes signal financial distress to lenders. Avoid applying for new credit cards, personal loans, or car finance for 6 months before your mortgage application.
Resolve Defaults and Pay Down Debt
Defaults ($150+ bills unpaid for 60+ days) severely damage scores and lender perception. Pay them immediately, request "paid in full" letters, and ask providers to remove listings (some will). Reduce personal loan and credit card balances below 30% of limits—high utilization hurts scores even if you pay on time.
Be Patient and Strategic
Credit score improvements take 3-6 months of consistent positive behavior. If your score is currently below 500, focus on: paying everything on time, reducing balances, and resolving defaults. Then wait 6 months before applying. If between 500-700, a 3-month improvement period may suffice. Above 700, you're well-positioned for competitive rates.
Key Takeaways
Credit scores are not permanent—they respond quickly to positive financial behavior. Check your reports, pay everything on time, reduce credit limits, and avoid new applications. In 3-6 months, your score can improve by 100+ points, unlocking better mortgage rates and higher borrowing capacity. A mortgage broker can review your credit position and advise on timing your application.
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Every situation is different. Speak with one of our mortgage brokers to discuss how these principles apply to your circumstances.
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