Your credit rating can prove to be a make or break factor when applying for a home loan. Different lenders have different criteria’s however all lenders will review your credit history to see whether or not you have a solid financial background.
What exactly is bad credit? Bad credit can be accumulated through late bill payments and defaults. This will make negotiation with a lender for a home loan tougher than if you were to have a good credit history.
Thankfully, a bad credit history doesn’t have to destroy your dream of property ownership. There are five easy things you can do to clear up your financial history, including:
1: Manage and Pay down your credit balances
Credit card debt put very simply can ruin your credit rating. Maintaining a higher percentage of debt in comparison to available credit will severely drag down your credit rating, so it is vital to keep up to date with payments and continually work to paying the credit balance down.
Tips on managing credit card debt
- Pay more than the bare minimum – Most credit card companies set the minimum monthly payment to be 2 – 3% of the balance of credit. So your minimum monthly payment is realistically covering some of the interest charged. Budgeting and being able to pay more will see you begin to take a chunk out of that debt.
- Putting your Savings to use – Many people are hesitate to dig into their savings to get on top of credit card debt. However making a bulk payment to knock off a chunk of your credit debt will save you in the long run on interest charged.
- Budget –Looking into spending habits per month will give you an insight into where exactly your money is being used.
2: Stay up to date
Your payment history accounts for 35% of your credit rating, so staying up to date with your payments on accounts is very important. If you have missed payments they will stay on your credit report for 7 years, so making a commitment to pay on time is a long term strategy to help you build a positive credit rating.
3: Keeping old accounts open
Not using an account anymore? Paid off the remaining credit debt? In this case you may think that closing an old account is beneficial. However closing these accounts can negatively affect your credit rating. A portion of your rating will depend on the length of your credit history. Therefor a longer credit history is considered to be beneficial.
4: Applying for new credit
Every time you apply for a credit card or a loan it is an activity that will be reflected on your credit report. Applying for various forms of credit in a short space of time can have a negative impact on your credit history. It is important to manage your accounts and not open too many unless it is completely necessary.
5: Different forms of credit
Ensuring that you are maintaining a good mix of credit is always a positive when being assessed by lenders. Maintaining a good mix of credit allows lenders to see that you can handle all different types of credit. Mortgages, auto loans, credit cards and personal loans are all different types of credit.
Your Mortgage Choice broker can review your credit history and help you to establish a plan to improve your financial history. If you need any assistance in this matter please don’t hesitate to call us on 02 9358 4855