Are you thinking of buying your first home? Since you’re on this page reading this article let’s assume that’s a yes, in which case you’ll need to know about your credit rating. Credit ratings or scores are used by banks and lenders to determine how much money they’re willing to lend you. The score on your file is based on your lending history, for example car loan repayments, credit card debts, and if you’ve applied for credit in the past. All of this information is analysed and condensed into a number that can determine just how much you’ll be able to borrow for a home loan.
What is a credit score?
In Australia, depending on which credit agency you go through your credit score will be a number from between 0-1200 or 0-1000. This number is the result of all your lending-based financial history, as well as all the loan applications or enquiries you’ve submitted. Credit agencies access data provided by banks and lending companies as well as debt collectors to create what’s called a credit report.
A credit report will show all the information from loans you’ve had in the past, credit cards and associated debt, loan enquiries, as well as how many jobs you’ve had and places you’ve lived! Generally speaking, the higher the number the better, but different agencies process the data differently, so what constitutes a “good” score will really depend on which agency you’re using.
What is a good credit score?
In Australia a “good” credit score is usually between 500-700. What does this mean? It means that in the past, you’ve pretty much paid all of your bills on time, haven’t got too much credit card debt, and haven’t needed to refinance any personal loans you may have had. Despite these factors however, sometimes one small incident can negatively affect your score.
The minimum credit score for a home loan in Australia sits between 650-700, although lenders look at much more than just this number. Your age, location, employment history, savings, plus much more will all be looked at and taken into consideration when you’re applying for a home loan. Don’t let this scare you though because you can still get a home loan even if you don’t have a stellar credit history.
What if I don’t have a good credit score?
Don’t stress! Many lenders these days will be happy to give you a home loan even if your credit score isn’t the best. Going through traditional lenders such as banks may not be your best bet, as they often won’t overlook a bad credit score, regardless of the reasons. Luckily, many modern lending companies will be happy to offer you a low credit score loan, subject to individual circumstances.
There are many many companies these days offering low credit loans for customers, so it’s important to always do your own research and make the best choice for yourself. You can always work on your credit score too! By paying down debt and increasing your savings you could plan for the future and allow yourself further opportunities for the perfect home loan for you.
How do I improve my credit rating?
If you’re thinking about applying for a home loan but your credit score isn’t so great, you may want to start taking steps to improve it.
- Get an updated credit check. Your credit score can fluctuate and change with even the smallest incident so getting an updated check is super important!
- If you notice any discrepancies in your report, make sure to get in touch with the credit report provider.
- If you don’t already have one, get a credit card that is right for you, and that you’ll be able to pay off in time. Believe it not, not having credit does not equal a good credit score, so get a credit card that will help boost your score.
- On the other hand, if you already have one or more credit cards, make sure you start eliminating any amounts owing on them.
- Finally, keeping a steady job and living situation is really important, because it shows lenders that you’re a stable person who will be able to pay what you owe, on time.
Taking these steps will begin to put you on the path to creating a better rating, and therefore a better loan for yourself in the future.
What are the benefits of a good credit rating?
While a good score isn’t necessarily a deal breaker for home loan applications, customers with higher credit scores may get better deals from their bank or lender.
Having a good relationship with your bank resulting from many years of successful banking could reap some benefits! You could be offered exclusive deals regarding your repayments or interest rates which in turn, will further improve your financial position.
It’s important to always be in control of your own financial position and seek to improve wherever you can!
I have a good credit score, why can’t I get a home loan?
It’s important to understand that while a good credit rating is extremely important, it is not the only factor that’s taken into account by lenders when approving home loans. Other factors such as your income, savings, and ability to manage your financial situation will all come into play when being assessed.
So while there is no minimum credit score for home loans in Australia, and a good credit rating isn’t always a necessity, it’s important that you are always on top of your finances.
This will ensure that you get the home loan that’s right for you, and remember WOW homes is always here to help answer any home finance questions you might have.