7 things to do to strengthen your credit and borrowing capacity

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Updated for 2026 • Consumer-focused credit and home loan information for Australians • Lending decisions depend on the lender and your financial circumstances

Having a strong credit history and realistic borrowing capacity can be important when you want to apply for a major loan, such as a car loan or home loan. In Australia, lenders may consider your credit report, repayment history, income, debts, living expenses, existing credit limits and savings history when assessing whether you can afford repayments.

A better credit score may help you appear less risky to lenders and may improve your ability to compare loan options. However, improving your credit score does not guarantee loan approval or a particular interest rate. Your borrowing capacity also depends on your income, expenses, deposit, debts and the lender’s assessment criteria.

The following seven strategies may help you improve your credit profile and prepare for a future home loan or other major borrowing decision.

What Is Borrowing Capacity?

Borrowing capacity is the amount a lender may be willing to lend based on your financial circumstances. For a home loan, lenders commonly consider whether you can afford the required repayments after accounting for your income, everyday expenses, existing debts and financial commitments.

Your borrowing capacity is not based only on your credit score. It may also be affected by:

• your income and employment situation
• regular living expenses
• existing personal loans, car loans or home loans
• credit card limits, even when balances are low
• buy now pay later or other credit commitments
• your savings history and available deposit
• the interest rate and loan term being assessed
• whether you are a guarantor for someone else’s loan

Before applying for a home loan, it can be useful to review your budget, check your credit report and compare what repayments may look like at different loan amounts and interest rates.

How Your Credit Score Can Affect Borrowing

Your credit score is based on information contained in your credit report. In Australia, this may include the credit products you hold, applications you have made for credit, repayment history, defaults and other relevant credit information.

A lender may review your credit report when deciding whether to provide a loan. A stronger repayment history and fewer signs of financial stress may help you present a lower-risk profile. A lower credit score, defaults or repeated applications for credit may make it harder to qualify or obtain competitive terms.

You can learn more about how Australian credit scores work through Moneysmart’s credit score guidance.

1. Pay Bills and Credit Repayments on Time

Paying your bills and credit repayments on time is one of the most practical ways to support a healthy credit history. Repayment history can appear on your credit report, and lenders may consider how reliably you have managed past obligations.

Payments to prioritise include:

• credit card repayments
• personal loan repayments
• car loan repayments
• home loan repayments
• utility and phone bills
• rent and other regular commitments

Missed payments can create more than a temporary inconvenience. If an eligible unpaid debt becomes a reported default, it may remain on your credit report for several years, even after it has been paid.

Ways to Reduce the Risk of Missing Payments

• Set up direct debit or automatic transfers where appropriate.
• Schedule payments shortly after your pay arrives.
• Set calendar reminders before each due date.
• Review statements regularly to confirm payments were processed.
• Contact the provider early if you expect payment difficulty.

If you are struggling to keep up with repayments, speak with your lender or service provider as soon as possible. A financial hardship arrangement may provide a more manageable solution than ignoring missed payments.

2. Reduce Credit Card Debt and Review Unused Credit Limits

Carrying high credit card balances can make it harder to manage monthly repayments and may affect how a lender views your financial position. Paying down existing balances can reduce interest costs and improve your overall debt position.

In Australia, it is also important to review your available credit limits. A lender assessing a home loan may take your credit card limits into account, even if you do not currently owe the full amount. For this reason, requesting higher credit limits purely to improve borrowing capacity may work against your goal.

Consider the following steps:

• pay more than the minimum credit card repayment where affordable
• prioritise high-interest balances
• avoid using credit cards for expenses you cannot repay comfortably
• review whether unused cards or high limits are still necessary
• consider lowering unnecessary credit card limits before a major loan application

Before reducing or closing a credit card, check whether there are annual fees, outstanding balances, automatic payments or other practical issues to manage first.

3. Limit New Credit Applications

Each time you apply for a credit product, the application may be recorded on your credit report. Applications can include credit cards, personal loans, home loans, car loans, store cards and some buy now pay later products.

Several applications within a short period may be a warning sign to lenders, especially if they suggest you are relying on additional credit to manage ordinary expenses.

Before applying for new credit:

• decide whether the product is genuinely needed
• compare eligibility criteria before making formal applications
• avoid applying to multiple lenders at the same time without a clear reason
• wait until your finances are stronger if a recent application was declined
• review your credit report before making a major home loan application

If you are planning to buy a home, opening new credit cards or taking on additional debt shortly before applying for a home loan may reduce your available borrowing capacity or make affordability assessment more difficult.

4. Do Not Keep or Close Credit Cards Automatically: Review What Helps Your Situation

Advice about credit cards should reflect your actual financial circumstances. Keeping an unused credit card is not automatically beneficial, and closing a credit card is not automatically harmful.

For Australians preparing for a home loan application, an unnecessary credit card limit may reduce borrowing capacity because a lender may consider the potential debt associated with that limit. On the other hand, closing an account without a plan may be inconvenient if it is linked to regular payments or needed for essential expenses.

Review each card by asking:

• Do I use this card regularly and repay it responsibly?
• Does the card charge an annual fee?
• Is the credit limit higher than I reasonably need?
• Could lowering the limit improve my home loan application position?
• Are subscriptions or bills linked to this card?
• Do I have an outstanding balance that must be repaid first?

The right decision may be to keep a useful low-limit card, reduce an excessive limit or close a costly unused card after transferring any regular payments and dealing with any remaining balance.

5. Check Your Credit Report and Correct Errors for Free

Errors on your credit report can affect how lenders assess you. In Australia, you have the right to access your credit report for free every three months, and it is worth checking your report at least once a year or before applying for a major loan.

When checking your report, look for:

• loans or credit accounts that do not belong to you
• incorrect personal details
• payments wrongly recorded as late or missed
• defaults that are inaccurate or out of date
• credit applications you do not recognise

If information is incorrect, you can request a correction free of charge. You may contact the relevant credit provider or a credit reporting body. You generally do not need to pay a credit repair company to correct inaccurate information.

Accurate negative information cannot simply be removed because it is inconvenient. If a legitimate missed payment, default or credit application is recorded correctly, it may remain on your report for the permitted reporting period.

6. Think Carefully Before Going Guarantor for Someone Else

Going guarantor for another person’s loan is a serious financial commitment. If the borrower cannot repay the loan, you may become responsible for making payments or repaying the debt under the guarantee.

A guarantee may also affect your own ability to borrow. If you later apply for a car loan or home loan, a lender may consider the guaranteed debt when assessing your financial position. If the guaranteed loan goes unpaid and a default is recorded, this may also affect your credit history.

Before agreeing to become a guarantor:

• understand the full amount you may be responsible for
• check whether your own property or savings could be at risk
• consider how the guarantee could affect your own future borrowing plans
• review what happens if the borrower misses payments
• seek independent legal or financial advice before signing

Helping a family member or friend can be important, but becoming a guarantor should never be treated as a formality. It is a legal and financial obligation that may have long-term consequences.

7. Build a Stronger Home Loan Application Through Savings and Lower Debts

Improving borrowing capacity is not simply a matter of improving a credit score. When considering a home loan, lenders may assess your income, expenses, deposit, savings behaviour, debts and credit history together.

Steps that may help you prepare for a future home loan application include:

• building a consistent savings history
• reducing credit card balances and unnecessary credit limits
• paying down personal loans or other debts where affordable
• avoiding unnecessary new credit applications
• reviewing everyday expenses through a realistic budget
• checking your credit report before applying
• comparing home loans based on interest rates, comparison rates, fees and features

For a home loan, the amount you can borrow is only part of the decision. You should also consider whether repayments remain affordable if your expenses increase or interest rates change.

Credit Score vs. Borrowing Capacity: What Is the Difference?

Factor	Credit Score	Borrowing Capacity
What it measures	Your credit risk based on information in your credit report.	How much a lender may be willing to lend based on affordability and lending criteria.
What may affect it	Repayment history, credit applications, credit products, defaults and reported information.	Income, expenses, debts, credit limits, deposit, loan type, interest rate and credit history.
Can it guarantee approval?	No. A strong score does not guarantee approval.	No. A borrowing estimate is not a formal loan approval.
What can help	Paying on time, limiting applications and correcting genuine errors.	Reducing debts and unnecessary limits, saving consistently and managing expenses.

Mistakes to Avoid When Trying to Improve Your Credit Position

Consumers trying to qualify for a major loan may accidentally make decisions that weaken their application. Common mistakes include:

• Making several credit applications quickly: Multiple applications may affect how lenders view your financial circumstances.
• Increasing credit card limits unnecessarily: Higher available limits may reduce home loan borrowing capacity.
• Ignoring errors on a credit report: Incorrect information should be challenged promptly and free of charge.
• Paying for promises to remove accurate negative information: Accurate information generally cannot be removed simply to improve a score.
• Becoming a guarantor without understanding the risk: A guarantee can affect your own future borrowing options.
• Applying for a home loan without reviewing your budget: Approval is not the same as long-term affordability.

Preparing to Apply for a Home Loan

If you plan to buy a home, begin preparing well before submitting an application. A lender may look at both your credit history and your ability to manage repayments over time.

A practical preparation checklist includes:

• request your free credit report and check it for errors
• make all current repayments on time
• reduce unnecessary personal debt where possible
• review and lower unused credit card limits where appropriate
• avoid new credit applications unless necessary
• create a realistic budget based on your current spending
• build savings for a deposit and purchase-related costs
• compare home loans from more than one lender
• review interest rates, comparison rates, fees and loan features

Comparison websites and property services may be useful when researching options, but consumers should still compare offers carefully and confirm the terms of any actual loan or property purchase arrangement.

Researching House and Land Options in Queensland

Consumers researching property options in Queensland may encounter providers offering information about new homes, house and land packages or buyer support services. For example, No1 Property Guide Queensland provides information about house and land package options in Queensland.

Before relying on any property-related service or package, independently review:

• the total purchase price and included features
• land, construction and ongoing property costs
• deposit requirements and eligibility criteria
• home loan interest rates, comparison rates and fees
• whether incentives or promoted offers affect the overall value
• whether independent financial or legal advice is appropriate

A lower advertised deposit or promotional offer does not automatically mean a property or home loan is affordable or appropriate for your financial situation.

Official Australian Credit and Home Loan Resources

Consumers who want to check their credit report, understand borrowing capacity or compare home loans can review official Australian consumer resources.

• Moneysmart: Credit Scores and Credit Reports
• Moneysmart: Credit Repair and Improving Your Credit Score
• Moneysmart: Choosing a Home Loan
• Moneysmart: Going Guarantor on a Loan
• OAIC: Correct Your Credit Report

Key Insights

• Your credit score and borrowing capacity are related, but they are not the same thing.
• Lenders may consider repayment history, credit applications, income, expenses, debts, credit limits and savings when assessing a loan application.
• Paying bills and credit repayments on time can support a healthier credit profile.
• Australians may request a free copy of their credit report every three months.
• Errors on a credit report can be corrected free of charge through a credit provider or credit reporting body.
• Lowering unnecessary credit card limits may support a stronger home loan application position; increasing limits is not automatically helpful.
• Applying for multiple credit products within a short period may negatively affect how lenders assess you.
• Going guarantor for another borrower can affect your own borrowing ability and may expose you to repayment responsibility.
• A stronger credit score does not guarantee home loan approval or a particular interest rate.
• Before buying property, compare home loan interest rates, comparison rates, fees, features and repayment affordability.

Frequently Asked Questions About Building Credit and Borrowing Capacity

How can I improve my credit score in Australia?

Moneysmart identifies practical steps such as paying rent or mortgage payments on time, paying utility bills and credit card repayments on time, limiting new credit applications and lowering unnecessary credit card limits. Improvements generally take time and depend on the information recorded in your credit report.

Can I get my credit report for free?

Yes. In Australia, you have the right to receive a free copy of your credit report every three months. Checking your report before applying for a significant loan can help you identify incorrect or unfamiliar information.

What should I do if my credit report contains an error?

You can ask the relevant credit provider or a credit reporting body to correct inaccurate information free of charge. If you are not satisfied with the response, you may be able to pursue a complaint or external dispute resolution option.

Will increasing my credit card limit improve my borrowing capacity?

Not necessarily. In Australia, a higher unused credit card limit may reduce the amount a home loan lender is prepared to lend because the limit represents potential debt. Lowering unnecessary limits may be more helpful when preparing for a home loan application.

Should I close an unused credit card before applying for a home loan?

It depends on your situation. An unused card with a high limit or annual fee may not be useful, but you should first consider any outstanding balance, automatic payments and whether lowering the limit rather than closing the card is more appropriate. Review your circumstances before making changes.

Does having a good credit score guarantee a home loan?

No. A good credit score may support a loan application, but lenders also consider income, expenses, existing debts, savings, deposit size, credit limits, loan terms and other lending criteria.

Can going guarantor affect my ability to get a loan?

Yes. A lender may consider loans you guarantee when reviewing your own application. If the borrower cannot repay and you also cannot meet the obligation, a default may affect your credit report and future borrowing options.

How can I improve my borrowing capacity before buying a home?

Steps may include reducing debts, lowering unnecessary credit card limits, maintaining on-time repayments, building savings, limiting new credit applications, reviewing expenses and checking your credit report before applying.

What should I compare when choosing a home loan?

Compare the interest rate, comparison rate, monthly repayment, application fees, ongoing fees, loan term and useful features such as offset or redraw facilities. Consider whether repayments remain affordable under changes in your financial circumstances.

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