Steps to Improve a Poor Credit Score
Here are actionable steps, along with estimated timeframes for impact:
Rectify Errors on the Credit Report
Action: Obtain a copy of your credit report and check for inaccuracies, such as incorrect defaults or inquiries.
Timeframe: Corrections usually take 1-2 months after lodging a dispute with the credit reporting agency.
Pay Down Existing Debt
Action: Focus on reducing high-interest debts, such as credit card balances. Aim to lower credit utilisation to below 30% of the available limit.
Timeframe: Positive changes can reflect in 1-3 months, depending on the reporting cycle.
Set Up Payment Reminders
Action: Use tools like calendar alerts or automatic payments to ensure bills are paid on time.
Timeframe: Consistent on-time payments will begin improving your score within 3-6 months.
Address Defaults and Collections
Action: Negotiate with creditors to settle or pay off defaults and request they update your record as “paid.”
Timeframe: While the record remains for up to 5 years, showing it as resolved is beneficial and can improve your score within a few months.
Limit New Credit Applications
Action: Avoid applying for new credit unless absolutely necessary. Each inquiry lowers your score slightly.
Timeframe: The impact of inquiries reduces after 12 months and disappears after 2 years.
Reduce Credit Limits
Action: Contact your bank to lower the credit limit on cards you don’t frequently use.
Timeframe: Changes are reflected in your score within 1-2 months.
Establish a Positive Credit History
Action: Use a low-limit credit card responsibly, paying it off in full each month to build a track record.
Timeframe: A strong history develops over 6-12 months.
Avoid Closing Old Accounts
Action: Keep older accounts open to show a longer credit history, as this positively impacts your score.
Timeframe: Immediate, as long as the account remains in good standing.
Final Thoughts
For home loan applicants in Australia, a well-maintained credit report is a crucial asset. By understanding the factors that brokers analyse and addressing potential issues, applicants can significantly enhance their chances of loan approval. Whether you’re self-employed or a salaried employee, maintaining financial discipline, paying bills on time, and minimising unnecessary credit applications are critical steps toward securing your dream home.
