6 min read | 16 May 2019
Improving your credit score can make all the difference when applying for a home loan. While your would-be lender may say no if your score is too low, you absolutely can take steps to help get your credit score in shape for a happier outcome.
It matters because lenders need more than your word when you say you can pay off the loan. In addition to your salary and debt info, they want to see that you’ve had a consistent handle on your money over time. Even if you’ve banked with them forever, your lender will look at your credit file alongside your application.
Your score is tallied using the information on your credit file, which is held by credit reporting agencies like Experian, Equifax and illion.
Agencies consider many factors when determining your score, like:
repayment record on credit cards and loans
total amount of debt you owe
how long you’ve had a credit history
and whether you have any history at all.
Depending on the credit reporting agency, your number will be somewhere between zero and 1,000-1,200.
A higher score is considered to be better as it indicates a lower risk
If you’re lower down the scale, you may only be able to access higher rate home loans (as lenders see you as kinda risky)
So, bearing in mind that each lender has its own credit criteria, including your income and liabilities, you’re pretty sweet with 800+ as your credit score. Keep in mind this is a guide only and we're not taking your personal circumstances into consideration.
A terrible term, but if your credit score is below the mid-600s, your score may need some love. The lower it goes, in fact, the closer you come to being defined as ‘credit impaired’ – in simple terms, a person not able to look after their debts. Which can make it hard to borrow.
Like we said early on, your credit score reflects a stable history. So, to pass your credit check, give yourself the time it needs to get your credit health in tip-top shape. In the scheme of things, isn’t waiting a year or so to apply for a home loan better than paying a loan shark at an outrageously high rate?
Check your credit file – if you find an incorrect ‘default’ (a default is where you haven’t paid up), a credit repair agency can help you remove it from your file.
Have a credit history – if you don’t have a credit card or personal loan, you may find you have no history at all. A post-paid mobile phone bill or utility bill (gas etc.) can count towards a good repayment history, as can rent. Note that they must be in your name and with your address.
Pay bills on time – it wasn’t always the way, but since 2018 a good bill payment record adds points to your score (it used to matter only if you were naughty).
Understand the definition of ‘on time’ – payments overdue by more than 60 days count as ‘defaults’. So, either pay by the statement due date or pay within 60 days after the due date to avoid it being on your file for five years. (Oh, and if you have legal action against you for payments after the 60 days, it’s on your file for seven years. Ouch.)
Don’t apply for ALL the loans – some people think that if one lender rejects you, the best thing to do is jump back up and find someone new. Don’t do this. The first lender said no for a reason. And when you go to another lender, they’ll be able to see that you’ve already had a crack. (It’s a process called a ‘hard credit enquiry’, and it stays on your file for two years.)
Don’t open credit cards just to get a credit history – there are better ways to begin your credit history than actually putting yourself in debt (see point 2)! Credit cards are a gateway drug, folks!
Pay down your cards and loans – if you absolutely must have a credit card or personal loan, pay those babies off. It shows the credit scorers that you’re using less of your available credit and not overspending (even better, lower your limits).
Be sure get to know your credit score – see how over at Credit Smart – and start making a plan for chipping away at your credit fitness. It’s good for your home loan application, and great for your confidence, too. When the right property comes knocking, you’ll be ready to roll.
And hey, if you have any questions about what we need from you when you apply Athena, get in touch. You can even text us, right now on 0429 333 555.