Improving your credit before you apply

Why does your credit file matter before you apply?

Every lender reads your credit file before deciding. It is a record of the loans and cards you have held, how you have repaid them, what applications you have made and any serious events such as defaults. A good file does not guarantee approval, and a poor one does not always mean decline, but it shapes which lenders will talk to you and on what terms.

The benefit of looking early is control. If you find an error, you can fix it before a lender sees it. If you find a genuine blemish, you can prepare a clear explanation and choose lenders accordingly. If your file is in good shape, you can apply with confidence. At Ownright Custom Finance we help borrowers across the credit spectrum, Australia-wide, and the first step is almost always the same: look at the report.

How do I get my credit reports?

Moneysmart says you can get your credit report at no cost once every three months and suggests checking at least once a year. It names Experian and Equifax as the two main credit reporting bodies, and notes that they can hold different information, so it is worth checking both.

When you request a report, you will generally see:

• Your personal details.
• Credit accounts you hold or have held, with limits and repayment history.
• Applications for credit you have made.
• Any defaults, court judgments or other adverse listings.
• A credit score, on a scale that runs from zero to either 1,000 or 1,200 depending on the body.

Put aside twenty minutes with a coffee and read it line by line. It is amazing how often something unfamiliar turns up.

What should I look for when I read it?

Moneysmart suggests checking that every loan or debt listed is yours and that your personal details are correct. In practice, look for:

• Accounts you do not recognise. These could be a mix-up or identity theft. Moneysmart notes you can request a temporary ban on your credit report to prevent unauthorised applications.
• Wrong amounts or dates on defaults or repayments.
• Old addresses and names that suggest a mismatched file.
• Duplicate listings of the same debt.
• Debts listed as unpaid that you have settled.
• A pile of recent enquiries that you do not remember making.

If something is wrong, contact the credit reporting body and ask for it to be corrected. Moneysmart says this is free, and warns that the only thing a repair company can ask a body to remove is wrong information.

How long do things stay on my credit report?

The OAIC sets out how long common items remain:

Item	How long it stays
Credit enquiry	5 years
Default	5 years
Repayment history	2 years
Court judgment	5 years
Serious credit infringement	7 years
Financial hardship information	1 year
Bankruptcy	The later of 5 years from the day you became bankrupt or 2 years from the day it ended

Moneysmart adds that paying off a default does not remove it, but the report will show it as paid, and that a hardship arrangement does not affect your credit score. If you keep to the arrangement, you are shown as up to date and the listing is deleted after 12 months.

Knowing the clock helps you plan. Sometimes the wisest move is to wait for a listing to age, while building a clean run of repayments in the meantime.

What can I actually do to improve my credit?

Some changes are quick and some take patience. A sensible order:

1. Fix errors. Correcting wrong information is free and is often the fastest win.
2. Pay on time. Moneysmart says repayment history covers the last two years, and that a missed payment is one not made within 14 days of the due date. Set up automatic payments for at least the minimum.
3. Deal with unpaid debts. Paying a default does not erase it, but showing it as paid reads better than unpaid.
4. Talk to lenders early if you are struggling. Moneysmart advises speaking to your lender before a small problem grows, and notes a hardship arrangement does not affect your score.
5. Reduce unused limits. Lenders often count the limit, not the balance.
6. Limit new applications. Moneysmart lists the number of credit applications you have made as a factor in your score.
7. Keep balances sensible. The amount you have borrowed is also a listed factor.

None of these is a trick. They are the habits that make a file look reliable, and they work best over months.

Who does this suit?

This guide is useful if you:

• Plan to buy, refinance or borrow in the next six to twelve months.
• Have had a default, late payments or a decline and want to understand why.
• Run a business and are about to seek finance for it.
• Are rebuilding after financial difficulty.
• Are not sure what a lender will see.

If you are already in the declined camp, our guide on whether you can get a home loan with bad credit covers the realistic routes.

What do lenders do with the information?

Lenders combine the credit file with your income evidence, expenses and the security. ASIC’s responsible lending rules say they must make reasonable inquiries about your financial situation, take reasonable steps to verify it and assess that the loan is not unsuitable. The credit file is one input to that process, alongside payslips, tax returns, bank statements and the property.

Policies differ. One lender may decline a recent default outright, while another may consider it where the cause is clear, the debt is paid and the conduct since has been clean. That variation is why matching your file to the right lender matters. Our bad credit home loans page shows how we approach it for home loans, and similar pages exist for bad credit personal loans, bad credit car loans and business loans with bad credit.

What does a worked example look like?

This is an illustrative scenario only and does not describe a real client.

A borrower plans to refinance in about a year. She requests her credit reports and finds a utility account listed as a default that she thought was settled, along with two old cards that still carry high limits. She contacts the reporting body with the paperwork and the listing is corrected. She closes the cards she no longer uses and sets up automatic payments on everything else.

Twelve months later, her file shows a clean run of repayments, no new enquiries and lower limits. Her broker is able to approach lenders with a stronger position and a short written explanation of the earlier issue. Nothing is guaranteed, but she has given herself the best chance by doing the groundwork early.

How does Ownright help with credit and loans?

We read your file with you and explain what lenders are likely to see. Trevor Scott and the team have worked on files with all kinds of histories, and we know which lenders are open to which situations. Sometimes the answer is to apply now with the right lender. Sometimes it is to spend a few months tidying up first and apply from a stronger position.

We work Australia-wide from our head office in Knoxfield, Victoria, and we will not promise approval before we have seen the facts. If you want to talk through your credit, start on our apply page or call 03 7043 7233.

What if my credit problem is identity theft or fraud?

Sometimes a bad listing is not your doing. If your report shows accounts or enquiries you do not recognise, treat it seriously. Moneysmart says unfamiliar debts could be identity theft and notes that you can request a temporary ban on your credit report to prevent unauthorised applications, with the OAIC explaining how.

Contact the credit reporting bodies and the lenders involved, keep a written record of each conversation and ask for the listings to be corrected. Because the correction process takes time, start well before any planned application. If you have a deadline, tell your broker so they can work out how to present the file honestly while the clean-up is under way.

Do hardship arrangements hurt my chances?

They can be less damaging than missed payments. Moneysmart says a hardship arrangement does not affect your credit score, that if you keep to it you are shown as up to date, and that the listing is deleted after 12 months. The OAIC lists financial hardship information as staying for one year.

That makes early conversation with a struggling lender worthwhile. Lenders still assess your overall situation when you later apply for new credit, and some will want to know why an arrangement was needed. A short, honest explanation, along with evidence of conduct since, generally lands better than silence. If you need a hand framing it, that is something a broker does regularly.

Is there any point checking my credit if I plan to use a broker?

Yes. A broker can read your file with you, but you are the best person to spot an account that is not yours or a detail that is wrong. Arriving with your own reports saves time and gives the broker a head start on explaining anything unusual. It also means that if a decline does occur, you will know what a lender saw. A few quiet minutes with your reports before the first conversation is one of the best-value things you can do.

What mistakes should I avoid?

• Applying for lots of credit at once. Applications are recorded, and the OAIC says enquiries stay on file for five years.
• Paying a repair company. Moneysmart warns against providers that ask for payment or card details.
• Ignoring small debts. Small unpaid accounts can become defaults.
• Closing the oldest card without thinking. It can shorten your visible history. Talk to a broker first.
• Assuming a paid default disappears. It stays for its full period, shown as paid.
• Taking out new credit just before applying for a mortgage. It can reduce borrowing power and add an enquiry.
• Not telling your broker everything. Surprises later are harder to manage.

What is a sensible timeline?

A rough plan, adjusted to your own situation:

• Now: Get reports from both bodies and fix any errors.
• Next month: Set up automatic repayments, deal with small unpaid debts and review card limits.
• Following months: Avoid new applications and let clean conduct build.
• Before applying: Speak to a broker, who can read your file against real lender policy and tell you whether to apply now or wait.

If you are facing a deadline, such as a settlement, say so early. There may be routes that work now, with a plan to refinance once your file improves. Our difficult home loans page explains what that can look like.

What should I have ready for the conversation?

• Credit reports from more than one body.
• A list of current debts, limits and repayments.
• Evidence of any debts paid or settled.
• A short explanation of anything negative on the file.
• Recent income evidence.
• Details of what you want to borrow and when.

With those, a broker can give you a clear view. Call Ownright Custom Finance on 03 7043 7233 or send us your details and we will tell you honestly where you stand.