Buying a home is one of the biggest financial decisions you’ll ever make, and your credit score plays a massive role in determining the kind of home loan rate you’ll get. A higher credit score can unlock lower interest rates, which means more money in your pocket rather than the bank’s.
If your score isn’t quite where you’d like it to be, don’t stress—you’re not alone! Many Aussies find themselves in the same boat, wondering how they can give their credit score a boost before applying for a home loan. The good news? It’s absolutely doable with the right approach.
Let’s break it down into simple, actionable steps so you can start working towards that dream home today.
What is a Credit Score, and Why Does it Matter?
Before we dive into improving your score, let’s cover the basics. In Australia, your credit score is a number between 0 and 1,200 (depending on the credit reporting agency). The higher your score, the less risky you appear to lenders, which means you’re more likely to be approved for a home loan with a better interest rate.
A good credit score can literally save you tens of thousands of dollars in interest over the life of your loan — so it’s worth putting in the effort to improve it.
You can check your credit score for free through agencies like Equifax, Experian, or illion. If you haven’t done this yet, start here so you know exactly where you stand.
1. Pay Your Bills on Time—Every Time
Think of your credit score like a trust rating. Lenders want to see that you’re reliable with repayments, so the best thing you can do is pay all your bills on time. This includes everything from credit cards and personal loans to electricity and phone bills.
Missed or late payments can stick around on your credit report for up to five years, so setting up direct debits or calendar reminders can help ensure you never forget.
Pro Tip: If you’re struggling to keep up with payments, contact your provider ASAP. Many companies offer hardship programs to help you avoid a negative mark on your credit file.
2. Reduce Outstanding Debts (Especially Credit Cards)
Your credit utilisation ratio (how much of your available credit you’re using) is a key factor in your score. If you have a $10,000 credit limit but constantly owe $9,500, lenders may see you as a high-risk borrower—even if you make repayments on time.
Here’s what you can do:
- Pay down your existing balances as much as possible.
- Avoid maxing out your credit cards.
- Consider requesting a lower credit limit if you don’t need the extra funds.
Example: Say you have a $5,000 credit card limit but only use $1,000—this looks much better to lenders than owing $4,900.
3. Keep Your Credit Applications to a Minimum
Every time you apply for a loan, credit card, or even some phone plans, a hard inquiry is recorded on your credit file. Too many applications in a short period can make you look desperate for credit, which raises red flags for lenders.
Instead of applying for multiple credit products at once, do your research first. Use online comparison tools to check what you’re eligible for before submitting applications.
We recommend limiting all credit enquiries in the months leading up to your homeloan application or refinancing.
4. Check Your Credit Report for Errors
Mistakes on credit reports happen more often than you’d think. An incorrect missed payment or an old debt that should’ve been removed can drag down your score unfairly.
How to fix it:
- Request a free copy of your credit report from Equifax, Experian, or illion (you’re entitled to one free report per year).
- Review it carefully for errors.
- If you spot something incorrect, lodge a dispute with the credit agency to have it fixed.
5. Keep Old Accounts Open
You might think closing an old credit card is a good idea, but keeping it open (as long as it has a good repayment history) can actually help your score.
Why? Because credit history length is a factor—longer credit histories make you look more stable to lenders. If there are no fees involved, consider keeping that old card open with a small limit.
6. Avoid Payday Loans and Buy Now, Pay Later (BNPL) Debt
Short-term payday loans or excessive use of BNPL services like Afterpay and Zip Pay can send the wrong message to lenders. Even though BNPL isn’t always listed as “debt” on your credit file, using these services frequently can indicate financial strain, which lenders might frown upon.
If you’re using BNPL services regularly, consider cutting back — especially in the lead-up to a home loan application.
We even recommend that you close these accounts altogether so that your borrowing capacity is not reduced.
7. Diversify Your Credit (But Only When Needed)
Having a mix of different credit types—like a credit card, a personal loan, and a car loan — can boost your score. But don’t take on unnecessary debt just for the sake of variety! The key is to demonstrate responsible management of different credit products.
8. Get Professional Help if Needed
If debt is weighing you down and affecting your credit score, don’t be afraid to seek professional help. Financial counsellors (such as those at MoneySmart.gov.au) offer free, confidential advice to help you get back on track.
How Long Does It Take to Improve Your Score?
Building (or rebuilding) your credit score isn’t an overnight process. It can take several months to a year to see significant improvements, but every positive action brings you closer to securing a better home loan rate.
Start small.
Pick one or two steps to focus on this month, and gradually work towards long-term habits that will keep your credit score healthy.
Improving your credit score doesn’t have to be complicated or stressful. With a little bit of planning, smart money habits, and patience, you’ll put yourself in a stronger financial position to secure that dream home loan at the best possible rate.
Do you have questions about home loans and refinancing? Our expert home loan broker is here to help — reach out today for a chat!