Your credit score plays a big role when applying for finance. While it’s possible to get a car loan with bad credit, improving your credit score can lead to better loan terms, lower interest rates, and a smoother application process.
Here are practical steps to help you improve your credit score before applying for a car loan in Australia.
1. Check Your Credit Report
Before doing anything else, get a copy of your credit report. You can access a free report once a year from major providers like Equifax, illion or Experian.
Look for any errors or inconsistencies such as:
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Accounts you don’t recognise
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Repayments marked as late (that weren’t)
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Incorrect balances or credit limits
If you find any issues, contact the credit reporting agency or relevant lender to have them corrected.
2. Pay Bills on Time
Your payment history is one of the biggest influences on your credit score. Consistently paying your bills – including phone, utilities, and rent – shows lenders that you’re financially responsible.
Consider setting up automatic payments or calendar reminders to stay on track.
3. Minimise Credit Applications
Each time you apply for credit, it creates an enquiry on your credit file. Too many applications in a short period can signal to lenders that you’re financially stretched, which may lower your score.
Try to avoid applying for multiple products at once, and only proceed when you’re confident it’s the right fit for you.
4. Pay Down Existing Debts
Lowering your existing debts improves your credit utilisation ratio – the amount of credit you’re using compared to your total available limit. A lower ratio generally leads to a higher credit score.
If possible, prioritise paying off high-interest credit cards or personal loans.
Need help consolidating debts? You can explore bad credit personal loans as an option to better manage your repayments.
5. Clear Any Defaults
If your credit report shows any defaults, paying them off is one of the most important steps you can take. While a paid default still appears on your report, lenders may view it more favourably than one that’s outstanding.
Once paid, it will be marked as “settled” or “paid in full”, which can improve your standing with potential lenders.
6. Avoid Closing Old Accounts
Length of credit history is another factor in your score. Older accounts in good standing show lenders that you’ve successfully managed credit over time.
Instead of closing unused accounts, consider keeping them open and using them occasionally – as long as there are no ongoing fees.
7. Track Your Progress
Improving your credit score doesn’t happen overnight, but the good news is that small, consistent efforts can make a big difference over a few months.
Check in regularly to see how your score changes – especially before applying for a car loan.
Bonus Tip: Use a Car Loan Calculator
Once your credit score is improving, use a car loan calculator to see how different loan amounts and repayment terms could work for your budget.
This will give you a realistic idea of what you can afford – and help you feel more confident going into your application.
A Lender That Looks Beyond the Score
At Finance One, we know that your credit score isn’t the full story. We specialise in helping everyday Australians with unique financial circumstances.
Even if your score isn’t perfect, our team can help find a car loan that works for your lifestyle. We look at your current ability to repay – not just your past.
Final Thoughts
If you’re looking to improve your credit score for a car loan, it starts with a few smart financial habits. By staying on top of your bills, reducing your debts, and checking your credit report regularly, you can set yourself up for a smoother approval process.
And remember – even if your score isn’t quite where you want it to be, help is available.
Disclaimer: The information above is of a general nature only and does not consider your personal objectives, financial situation or particular needs. You should consider seeking independent legal, financial, taxation or other advice to check how the information relates to your particular circumstances. We do not accept responsibility for any loss arising from the use of, or reliance on, the information.
