When it comes to refinancing, one of the most crucial factors that will determine the success of your application and the terms of your new loan is your credit score. A higher credit score can help you lock in better interest rates and save you thousands over the life of your loan. Before you consider refinancing, it’s important to take steps to improve your credit score so you can maximise your financial advantage. In this article, we’ll guide you through actionable steps to boost your credit score before refinancing.

Understanding Credit Scores and Their Impact on Refinancing

In Australia, your credit score is a numerical representation of your creditworthiness. Lenders use this score to assess the risk involved in lending you money. The higher your credit score, the more likely you are to secure favourable terms on your refinance. Credit scores typically range from 0 to 1,200, and they are calculated based on several factors, including your payment history, credit utilisation, and length of credit history.

When you refinance, lenders look at your credit score to determine the interest rate they will offer. A lower credit score could mean higher rates, while a higher score often unlocks lower rates and better terms. That’s why improving your credit score before applying for refinancing is essential if you want to save money.

Steps to Improve Your Credit Score Before Refinancing

A. Review Your Credit Report for Errors

The first step in improving your credit score is ensuring that your credit report is accurate. Inaccuracies in your credit report can drag down your score. In Australia, you can request a free credit report from agencies like Equifax, Illion, or Experian. Once you have your report, carefully review it for any mistakes, such as incorrect personal details, accounts that don’t belong to you, or misreported payments. If you spot an error, be sure to file a dispute with the credit reporting agency to have it corrected.

B. Pay Down Outstanding Debts

One of the most significant factors affecting your credit score is your credit utilisation ratio—how much of your available credit you’re using. Paying down outstanding debts, particularly high-interest debt, can improve your score quickly. Aim to reduce your overall balance to less than 30% of your available credit limit.

C. Make Timely Payments

Your payment history makes up a large portion of your credit score. Consistently making on-time payments on your existing loans, credit cards, and other debts is crucial to maintaining or improving your credit score. If you’ve struggled with missed payments in the past, setting up automatic payments can ensure you never miss a deadline going forward.

D. Avoid New Credit Applications

Applying for new credit can temporarily lower your credit score, as it results in a hard inquiry on your credit report. In the months leading up to your refinance application, avoid applying for new credit cards or loans. Each hard inquiry stays on your credit report for two years, so keeping your credit profile stable will help maintain your score.

E. Reduce Your Credit Card Balance

Credit card debt can weigh heavily on your credit score, especially if your balances are close to the credit limit. Reducing your credit card balance is one of the fastest ways to improve your score. Consider paying off as much of your credit card debt as possible before you apply for refinancing, and aim to keep your balance well below 30% of your credit limit.

F. Keep Old Credit Accounts Open

The length of your credit history also impacts your score. If you have old credit accounts with a long history of on-time payments, keep them open even if they’re not in use. Closing old accounts shortens your credit history, which can negatively affect your credit score.

The Importance of Planning Ahead

Improving your credit score isn’t something that happens overnight. It can take several months of consistent effort to see significant changes. For this reason, it’s essential to start working on your credit score at least six months before you plan to refinance. This gives you enough time to implement changes and see the results reflected in your credit score.

How Refinancing Can Improve Your Financial Health

Once your credit score has improved, refinancing your mortgage or personal loan can be a smart financial move. With a higher credit score, you’re more likely to secure lower interest rates, which can significantly reduce your monthly repayments. Over time, these savings can add up to thousands of dollars.

For those who are self-employed or may not have the full range of financial documentation typically required by lenders, refinancing with a low doc home loan can be an ideal solution. At Freedom Loans, we specialise in helping clients secure low-doc refinancing options that offer flexibility and competitive rates. Whether you’re looking to refinance your existing loan or get a better deal on your mortgage, we can guide you through the process and help you find the best loan to meet your needs.

Conclusion

Improving your credit score before refinancing is one of the best ways to ensure you get the most favourable terms on your new loan. By reviewing your credit report, paying down debt, and making timely payments, you can boost your score and increase your chances of approval. When you’re ready to refinance, Freedom Loans is here to assist with personalised loan options tailored to your financial goals. Contact us today to get started.

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If you’ve been turned down by a bank – or more than one – because of bad credit, give us a call on 1300 364 751. We’ll tell you, straight-up, how we can help, so you can stop worrying and get back to living.

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