October 06, 2016 by Rebecca Crommelin
When you apply for a home loan, your lender will take a look at your credit history to see whether or not there are any financial skeletons in your closet (so to speak).
If your credit history consists of several late bill payments and defaults, it can be more difficult to negotiate with a lender for a home loan.
Luckily, having a bad credit history doesn't have to ruin your dream of buying your own home.
Here are five simple tips to help you improve your credit rating;
Tip 1: Pay down your credit balances
Having a stack of credit card debt can be damaging to your credit rating. Carrying a high percentage of debt in relation to available credit will drag down your credit rating, so it is crucial to stay on top of paying down these balances.
It might be worthwhile setting yourself a tight household budget while you are paying down your debts. Revolving credit such as credit cards should be paid off as fast as you can. Better yet, if you pay this debt off quickly, you will also save money on the high interest rates charges. So if you are someone who will be tempted by credit cards in your wallet, then consider cancelling your cards once you have completely paid them off in full.
Tip 2: Better your payment habits
Your payment history makes up 35% of your credit rating, so it is important to keep a positive payment history. Don't stress if you know you already have some late or missed payments on your credit report. You can't change the past, however your credit report only accounts for seven years of your credit history. By making a commitment now to improve your payment habits, you will better your credit rating in the long term.
Tip 3: Keep old accounts open
Many think that it's helpful to close old accounts that you no longer use, but by closing these accounts you can actually decrease your credit rating. Part of your rating depends on the length of your credit history. A long credit history is considered valuable, so it's best to keep old accounts open to ensure your overall credit history is as long as possible.
Tip 4: Be careful about new credit
When you apply for a new credit card or loan this is always documented on your credit report. If you apply for too much credit within a short period of time, it can be damaging to your credit history. In addition, opening several new accounts can also make it harder to manage your credit. So you should always only apply for credit when needed.
Tip 5: Keep a mix of credit
Lenders love to see a variety of credit types on your credit report to make sure you can handle different types of credit. Mortgages, personal loans, car loans and credit cards are all different types of credit.
It's time to spring clean your financial situation - call our team today at Mortgage Choice Joondalup & Clarkson on (08) 9485 0090 for help improving your credit rating and to better your financial situation.
Dennis Aplin,
dennis.aplin@mortgagechoice.com.au
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