How to Improve Your Credit Score Before a Personal Loan | Covero
Credit Score
How to Improve Your Credit Score Before Applying for a Personal Loan
Learn proven strategies to improve your credit score before applying for a personal loan. From fixing report errors to reducing credit utilisation, discover actionable steps that lead to better rates and terms.
Covero Team
Financial Content Writer
Last updated: 15 April 20267 min read
Your credit score is one of the most important factors lenders consider when you apply for a personal loan. It influences not just whether your application is approved, but also the interest rate, loan amount, and repayment terms you're offered. A higher score can save you hundreds or even thousands of dollars over the life of your loan.
In Australia, credit scores are calculated by bureaus like Equifax, Experian, and illion. While each uses a slightly different scale, the principles for improving your score remain the same. Whether you're planning to borrow soon or simply want to strengthen your financial position, these strategies will help you build a healthier credit profile.
This guide covers the specific actions you can take to boost your score, how long each strategy takes to show results, and how even small improvements translate to better loan outcomes.
Understanding Credit Score Ranges
Before you start working on improvements, it helps to know where you currently stand. The table below shows the general credit score ranges used by Equifax, one of Australia's three main credit reporting bureaus.
Some lenders available; expect moderate interest rates
661–734
Good
Competitive rates from most mainstream lenders
735–852
Very Good
Strong approval odds; favourable terms and rates
853–1200
Excellent
Access to the best rates and most flexible terms
Your position on this scale directly affects the offers available to you. Even moving from “Average” to “Good” can open the door to significantly better loan terms. Keep in mind that different bureaus may report slightly different scores for the same individual, as each weighs factors differently. Checking your score with at least two bureaus gives you a more complete picture of your credit standing.
Proven Strategies to Boost Your Score
Improving your credit score requires consistent effort, but the results are well worth it. Here are six practical steps that can make a real difference to your creditworthiness.
1. Review Your Credit Report for Errors
Start by requesting a free copy of your credit report from Equifax, Experian, or illion. You're entitled to a free report from each bureau once a year. Review every entry carefully — look for incorrect payment histories, accounts that aren't yours, or debts listed as outstanding that you've already repaid.
Errors on credit reports are more common than most people realise. If you find any inaccuracies, lodge a dispute with the relevant bureau immediately. Correcting mistakes can lead to a quick and significant score improvement without changing any of your financial habits.
2. Prioritise On-Time Payments
Your payment history carries substantial weight in credit score calculations. A single missed or late payment can remain on your credit file for up to two years in Australia. Set up direct debits or automatic transfers for recurring bills including utilities, phone plans, and existing loan repayments.
Even small bills matter. A phone plan that goes to a debt collector over a $200 balance can damage your score just as much as missing a large loan repayment. If you're struggling to keep track, consider using a budgeting app that sends payment reminders. Consistent on-time payments demonstrate reliability to lenders and steadily build your score over time.
3. Lower Your Credit Utilisation Ratio
Credit utilisation measures how much of your available credit you're currently using. For example, if you have a credit card with a $10,000 limit and a $7,000 balance, your utilisation is 70 per cent — well above the recommended threshold.
Financial experts generally recommend keeping utilisation below 30 per cent. You can achieve this by paying down existing balances, requesting a credit limit increase without spending more, or spreading expenses across accounts. Reducing utilisation is one of the fastest ways to see a positive change in your score.
4. Limit New Credit Applications
Every time you apply for a credit card, loan, or other form of credit, a hard inquiry is placed on your file. Multiple hard inquiries within a short period suggest financial distress to lenders and can drag your score down.
When you're ready to compare personal loan offers, look for lenders or platforms that use soft credit checks for initial comparisons. This allows you to shop around without affecting your score. Only proceed with a formal application once you've identified the most suitable option.
5. Maintain Older Credit Accounts
The length of your credit history contributes to your overall score. Closing old credit cards or accounts — even ones you rarely use — shortens your average credit age and can reduce your score.
If an old credit card has no annual fee, consider keeping it open with a zero balance. This maintains your credit history length and also helps lower your overall utilisation ratio by keeping your total available credit higher.
6. Consolidate High-Interest Debts
Managing multiple debts with different due dates and interest rates increases the risk of missed payments. Combining several debts into a single loan with one regular repayment can simplify your finances and reduce the chance of defaults.
If you're juggling credit card balances or multiple personal loans, you might want to explore debt consolidation options. A consolidation loan can lower your total interest costs while giving you a clear timeline for becoming debt-free, both of which support a healthier credit score.
How Long Does It Take to See Results?
Credit score improvement isn't instant, but some changes produce faster results than others. The following table outlines realistic timeframes for common credit-building actions.
Action Taken
Estimated Impact
Expected Timeframe
Correcting report errors
25–100+ points
30–90 days
Consistent on-time payments
20–50 points
3–6 months
Reducing credit utilisation
30–80 points
1–3 months
Limiting new applications
10–30 points
3–6 months
Keeping old accounts open
10–20 points
Ongoing benefit
Consolidating debts
20–50 points
6–12 months
Keep in mind that these are general estimates. Individual results vary depending on your starting position, the specific changes you make, and how frequently your credit bureau updates your file.
The Impact of a Better Score on Your Loan
A stronger credit score doesn't just improve your chances of approval — it directly affects the cost of borrowing. The interest rate difference between a “Good” and “Excellent” credit score can be significant.
Consider this: on a $15,000 personal loan repaid over five years, the difference between a 12% and 8% interest rate amounts to approximately $1,600 in total interest. That's money you could put toward savings, investments, or other financial goals.
Beyond interest rates, a higher score can unlock larger loan amounts, longer repayment terms, and greater flexibility in how you structure your borrowing. Some lenders also offer faster approvals and reduced documentation requirements for applicants with strong credit histories.
Starting your credit improvement journey well before you need to borrow gives you the best chance of securing favourable terms. Most financial advisors recommend beginning at least three to six months before you plan to submit a loan application.
Key Takeaways
Your credit score directly affects personal loan approval, interest rates, and terms
Request free credit reports annually and dispute any errors immediately
On-time payments and low credit utilisation have the greatest impact on your score
Avoid multiple loan applications in a short period — use soft-check comparison tools instead
Keep old credit accounts open to maintain a longer credit history
Debt consolidation can simplify repayments and support gradual score improvement
Even modest score improvements can lead to meaningfully better loan offers
Begin improving your score at least three to six months before applying for a loan
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It depends on the actions you take. Correcting report errors can show results in 30–90 days, while building a strong payment history may take 3–6 months. Reducing credit utilisation typically has one of the fastest impacts, often visible within 1–3 months.
No. Checking your own credit score is considered a soft inquiry and does not affect your score. Only hard inquiries from lenders when you formally apply for credit can temporarily lower it.
Requirements vary by lender, but most personal loan providers prefer a score of at least 500–600. Borrowers with scores above 700 typically receive the most competitive rates and terms.
Yes. Consolidating multiple debts into a single loan can reduce the risk of missed payments and lower your overall credit utilisation. Over time, consistent repayments on a consolidation loan can positively impact your credit profile.
Covero is not a lender and cannot predict the exact fees or interest you will be charged. Loan terms, including finance charges and interest rates, are determined solely by the lender based on their underwriting criteria. You will be provided with full disclosure of all loan terms, including APR, fees, and repayment schedule, before accepting any loan offer.
Late Or Non-Payment Implications
Late or missed payments may result in additional fees, increased interest rates, or other penalties as determined by your lender. Failure to repay a loan may negatively affect your credit score and may result in collection activity. Each lender has its own policies regarding late or non-payment. Please review your loan agreement carefully for details.
Potential Impact to Credit Score
Submitting a request through Covero may involve a soft credit inquiry, which does not affect your credit score. However, if you are matched with a lender and choose to proceed, the lender may perform a hard credit inquiry, which could impact your credit score. Timely repayment of your loan may positively affect your credit, while late or missed payments may have a negative impact.
Loan Renewal Policies
Loan renewal or rollover options are not always available and depend on the lender and applicable state regulations. Renewing a loan may result in additional fees and interest charges. Covero encourages borrowers to repay loans in full by the original due date whenever possible. Please contact your lender directly for information about renewal policies.
Collection Practices
Covero is not involved in the debt collection process. If you are unable to repay your loan, your lender or a third-party collection agency may attempt to collect the debt. Collection practices are governed by federal and state laws, including the Fair Debt Collection Practices Act (FDCPA). If you have concerns about collection activity, we encourage you to contact your lender directly.
Legal Disclaimer
Covero is not a lender, loan broker, or agent for any lender. We operate a referral service that connects consumers with potential lending partners. We do not make credit decisions, guarantee loan approval, or determine loan terms. All loan offers are made by independent third-party lenders. Submission of a request does not guarantee an offer or approval. Covero may receive compensation from lending partners for completed referrals. This service is not available in all states.
Availability
The availability of loan products and terms varies by state. Some states may have specific regulations that limit the types of loans offered, maximum loan amounts, interest rates, and repayment terms. Covero does not guarantee that loan offers will be available in your state. Please check with your lender for state-specific terms and conditions.
Material Disclosure
Covero operates as an advertising referral service. We are not a lender and do not provide loans directly. When you submit a request, your information may be shared with one or more lending partners who may offer you a loan. Loan amounts typically range from $250 to $3,000. Covero may receive compensation when you are connected with a lender, regardless of whether you accept a loan offer. This compensation may influence how and where offers are presented.
