Welcome to the third instalment of our four-part series on credit mastery for home buyers and investors. In this third blog, we’ll explore the best ways to increase your credit score to strengthen your mortgage application and approval.

Having explored what’s in a credit report and how to interpret the information in my previous 2 posts, you’re now ready to take action. This guide outlines proven strategies to boost your creditworthiness over time, with specific timelines designed to prepare you for the mortgage application process. By implementing these methods, you’ll not only improve your chances of approval but potentially secure better interest rates and loan terms.

If you’re joining us for the first time, I recommend checking out the previous blogs before diving into these improvement strategies.

Blog 1: The Full Credit Report: 7 Critical Sections That Affect Mortgage Approval

Blog 2: How to Maintain a Good Credit Score: Interpreting Your Credit Report for Mortgage Success

Key Principles for the Best Way to Increase Credit Score

In order to improve your Credit Report, working on getting a top credit score will automatically elevate your credit reporting. Your credit Score reflects your credit report and your credit report if a reflection of you credit score. When looking to improve your credit report and therefore your score, the below points are key to remember.

Recovery Time: Understanding How Long It Takes to Increase Credit Score

• Late payments impact decreases after 2 years
• Hard inquiries impact for 1 year but visible for 2
• Most negative items fall off after 7 years
• Bankruptcy can stay for 7-10 years depending on type.

Score Impact Factors: What Affects Your Credit Improvement Journey

• Higher scores are more sensitive to negative actions
• Lower scores see bigger improvements from positive actions
• Recent activity has more impact than older items
• Multiple negative factors compound the impact

Building Good Credit Takes Time:

• Focus on consistent positive behaviour
• No quick fixes for legitimate negative items
• Improvement is gradual but sustainable
• Prevention is easier than repair

These last few points are critical. It takes little time to mark your credit score and report with a negative impact. These could have a longer lasting effect than you are aware of. You may then have to wait until your good credit behaviour outweighs the blemishes before applying for your home loan. This has a roll-on effect in opportunity costs.

The Best Way to Increase Credit Score in 12 Months

Let’s look at what you can improve on over a 12-month period that will make a difference to your Credit Score.

Immediate Actions (0-3 Months) to Increase Credit Score

Check your credit reports for errors

1. • Request free reports from major bureaus (you can get 1 free report annually)
   • Dispute any inaccuracies
   • Monitor for identity theft

Make all payments on time

1. • Set up automatic payments
   • Create payment reminders
   • Build an emergency fund

Reduce credit utilization

1. • Pay down credit card balances
   • Keep utilization below 30%
   • Request credit limit increases

Medium-Term Strategies (3-6 Months) to Increase Credit Score

Maintain low credit card balances

1. • Create a debt payoff plan
   • Stop using cards for major purchases
   • Consider balance transfer options

Don’t close old accounts

1. • Keep oldest accounts active
   • Use cards occasionally
   • Monitor for fraud

Limit new credit applications

1. • Avoid unnecessary inquiries
   • Research before applying
   • Space out applications

Long-Term Improvement (6-12 Months) to Increase Credit Score

Build a diverse credit mix

1. • Maintain different types of credit
   • Consider a credit-builder loan
   • Keep balances manageable

Establish payment history

1. • Document rent payments
   • Report utility payments
   • Maintain consistent payments

The Best Way to Increase Credit Score for Mortgage Applications

Before Applying

• Review your credit report and score
• Pay down revolving debt
• Avoid major purchases
• Keep employment stable

During Application Process

• Avoid new credit applications
• Maintain current payment patterns
• Document all income sources
• Keep credit utilization low

Common Mistakes That Prevent the Best Way to Increase Credit Score

1. Missing payments
2. Maxing out credit cards
3. Closing old accounts
4. Applying for new credit
5. Making major purchases

Timeline: The Best Way to Increase Credit Score Before Home Loan Approval

Being in the best financial state when applying for a home loan is a strategy most people don’t do or understand. You are now armed with the relative information, put it into action! Your future self will thank you.

Implement the below strategy 12 months out each time you’re about to go for a home loan, an investment home loan or refinance your home or investment. Not only will it improve your chances immensely for an easy approval, but it will also allow you to grow financially aware and be financially organised.

12 Months Before Home Purchase

• Pull credit reports
• Create improvement plan
• Start tracking expenses
• Build emergency fund

6 Months Before

• Review progress
• Address remaining issues
• Maintain good habits
• Gather documentation
• Check Credit Score

3 Months Before

• Freeze credit applications
• Maintain status quo
• Document improvements
• Prepare for mortgage application
• Check Credit Score

US Resources and Tools

Free credit monitoring services

• Credit Karma: Real-time monitoring, score simulator, and personalized recommendations
• Experian Boost: Helps improve scores by adding utility and phone payments to your credit file
• Credit Sesame: Free monthly score updates with identity theft protection
• NerdWallet: Credit score monitoring with personalized advice for improvement

Budgeting apps

• Mint: Comprehensive financial tracking with bill payment reminders
• YNAB (You Need A Budget): Zero-based budgeting system perfect for debt paydown
• PocketGuard: Helps prevent overspending with “In My Pocket” feature
• Goodbudget: Envelope-based budgeting system for controlling spending categories

Credit score simulators

• myFICO Score Simulator: See how specific actions might affect your FICO score
• Capital One’s CreditWise Simulator: Free simulator regardless of whether you’re a customer
• Bankrate’s Credit Score Simulator: Test various scenarios on your credit profile
• TransUnion’s Score Simulator: Available through their CreditCompass product

Financial education resources

• Consumer Financial Protection Bureau: Government resources for credit education
• Fannie Mae HomeReady Program: Educational resources for first-time homebuyers
• Freddie Mac CreditSmart: Free online courses on credit management
• Khan Academy Personal Finance: Free courses on managing credit and debt
• The Motley Fool’s Credit Center: Articles and guides focused on credit improvement
• BiggerPockets: Forums and resources specifically for real estate investors

Australian Credit and Financial Resources

Free Credit Monitoring Services

• Equifax Australia: Free annual credit report and paid monitoring services Website: https://www.equifax.com.au/
• Experian Australia: Free credit score and report with monitoring alerts Website: https://www.experian.com.au/
• illion Credit Register: Free access to your credit report once a year Website: https://www.creditregister.com.au/
• CreditSavvy: Free Experian credit score, monitoring and alerts Website: https://www.creditsavvy.com.au/

Budgeting Apps

• Pocketbook: Australian-specific budgeting app that connects to local banks Website: https://getpocketbook.com/
• MoneyBrilliant: Australian financial management app with bill tracking Website: https://www.moneybrilliant.com.au/
• WeMoney: Australian financial wellness platform with credit score monitoring Website: https://www.wemoney.com.au/
• Frollo: Australian money management app with spending insights Website: https://frollo.com.au/

Financial Education Resources

• MoneySmart (ASIC): Australian government site with financial guidance Website: https://moneysmart.gov.au/
• National Debt Helpline: Free financial counseling service Website: https://ndh.org.au/
• Financial Counselling Australia: Resources and support for financial wellbeing Website: https://www.financialcounsellingaustralia.org.au/
• Australian Financial Complaints Authority (AFCA): Help with financial disputes Website: https://www.afca.org.au/

Real Estate and Mortgage Resources

• Mortgage Choice: Australian mortgage broker with educational resources Website: https://www.mortgagechoice.com.au/
• Canstar: Comparison site for Australian financial products including home loans Website: https://www.canstar.com.au/
• RateCity: Australian comparison site for credit products Website: https://www.ratecity.com.au/
• Property Investment Professionals of Australia (PIPA): Resources for property investors Website: https://www.pipa.asn.au/

Now that you understand the best ways to increase your credit score for mortgage success, you’re well-equipped to begin your credit improvement journey. These strategies require consistency and patience, but the financial rewards are substantial.

In our upcoming fourth blog, “How to Remove Negative Items from Your Credit File,” we’ll explore specific techniques for addressing more challenging credit issues. You’ll learn about legitimate methods to dispute and potentially remove negative items that may be holding your score down.

By combining the improvement strategies outlined in this blog with the removal techniques in our next instalment, you’ll have a comprehensive toolkit for achieving your best possible credit position before applying for a home loan.

Stay tuned to complete your credit mastery education!