How to Improve Your Credit Score Before Applying for a Loan

When you're preparing to apply for a loan - whether it's for a car, caravan, motorbike, or to cover personal expenses - one of the most powerful tools at your disposal is your credit score. It's more than just a number. Your credit score reflects how you've managed credit in the past and plays a big role in determining not just your approval odds, but also the terms you're offered - like interest rates, loan amounts, and repayment flexibility.

At AFS, we've been helping Australian access tailored finance solutions for over 30 years. We understand that not everyone starts from the same place, and we regularly work with customers looking to improve their credit position before taking the next step in their finance journey.

So, if you're wondering how to put your best foot forward before applying for a loan, here's your step-by-step guide to improving your credit score.

Check Your Credit Report and Score

First things first—know where you stand.

In Australia, you’re entitled to a free copy of your credit report from each of the major credit reporting agencies: Equifax, Experian, and Illion. These reports give you an overview of your credit history, including current and past loans, repayment records, credit card usage, and any defaults or missed payments.

Take the time to review your report carefully. Look for:

• Incorrect personal details
• Debts that aren't yours
• Loans that have already been repaid but still appear active
• Duplicate listings

If you find an error, contact the credit reporting agency immediately to have it corrected. Inaccurate listings can drag down your score and lead to less favourable loan offers.

At AFS, we always recommend checking your credit report early in your loan planning process. It's a simple but powerful step toward securing the right loan.

Stay on Top of Payments

Your repayment history is one of the most influential factors when it comes to your credit score. Even one missed or late payment can leave a mark.

That’s why it’s essential to pay all your bills on time—not just credit cards and loan repayments, but also utilities, rent, and phone bills. These payments show up in your credit report and can affect how lenders view your reliability.

• Here are a few practical ways to stay organised:
• Set up direct debits for recurring bills
• Use calendar reminders
• Consider budgeting apps to manage due dates

We know that life gets busy, and sometimes things slip through the cracks. But when you're preparing to apply for a loan, it's worth tightening up your payment habits.

Reduce Your Credit Card Balances

Another major factor in your credit score is credit utilisation—that is, how much of your available credit you’re using. Ideally, you should aim to keep this number under 30%. So, if you have a $5,000 credit limit, try to keep your balance under $1,500.

Reducing your balances does a couple of things:

• Improves your score over time
• Signals to lenders that you’re not overextended
• Frees up borrowing capacity for your new loan

Focus on paying down high-interest cards first or consolidating balances to lower your total monthly repayments. If you’re not using a card, don’t rush to close the account—doing so could increase your utilisation ratio and shorten your credit history (more on that shortly).

At AFS, we often see that customers with lower credit balances are in a stronger position to negotiate better loan terms.

Avoid Applying for Multiple Loans or Credit Cards

Each time you apply for credit, a hard enquiry is added to your credit report. A few of these are fine—but too many in a short space of time can make lenders nervous. It may look like you're financially stressed or taking on too much debt too quickly.

Our advice? Be selective about what you apply for in the lead-up to your main loan application. If you're planning to take out finance with AFS soon, hold off on applying for:

• New credit cards
• Store finance deals
• Buy-now-pay-later arrangements

By keeping your recent credit enquiries to a minimum, you’ll help protect your score and give lenders more confidence in your financial stability.

Pay Off Old Debts

If you’ve got any defaults, unpaid bills, or overdue debts, now’s the time to deal with them.

Outstanding debts can significantly harm your credit score and reduce your borrowing power. In some cases, they might result in automatic rejection of your application—especially if the debt is recent or significant.

Here’s how to start clearing them:

• Contact creditors to negotiate payment plans
• Make lump-sum payments where possible
• Request a “paid” or “settled” status once cleared

The sooner you act, the sooner your credit report will reflect the improvement. Even if the debt is several years old, paying it off can still have a positive effect on your overall creditworthiness.

At AFS, we know that life happens—and we take a fair view when assessing your full financial situation, not just your credit score. But dealing with past debts is a proactive move that always pays off.

Keep Your Old Credit Accounts Open

Length of credit history matters. Even if you’re no longer using an old credit card, keeping it open can help your credit score by:

• Increasing your average account age
• Reducing your credit utilisation ratio

Instead of closing old accounts, consider using them occasionally for small purchases and paying them off in full each month. This keeps the account active and positive on your report.

Just make sure there are no inactivity fees or annual charges that outweigh the benefit of keeping the account open.

Be Consistent and Give It Time

There’s no instant fix when it comes to improving your credit score. It takes patience, consistency, and smart money habits over time.

Start with small wins—like paying your bills on time or reducing a credit card balance—and build from there. Even modest improvements can make a big difference when applying for finance, especially when you're looking for better interest rates or higher borrowing limits.

At AFS, we support customers on every step of their journey. If your credit history isn't perfect, we’ll still take the time to understand your circumstances and help you find a loan solution that works for you.

Final Thoughts

Improving your credit score isn’t just about ticking boxes—it’s about building a stronger financial foundation that benefits you now and into the future. From checking your credit report to managing your repayments and limiting new enquiries, every step you take brings you closer to better loan opportunities.

At AFS, we’re proud to support Australians from all walks of life. Whether you're looking to finance a car, motorbike, caravan, or personal loan, our team is here to help you put your best foot forward—with flexible terms, competitive rates, and the kind of real support that puts your needs first.

Ready to apply? Use our Loan Calculator to see what your repayments might look like, or Apply Now and let’s take the next step together.