Your Credit Rating

October 20, 2016
Simone Ruddock

At the time of applying for a home loan, the lender needs to use what information they have available to decide whether or not to provide the loan to you. Their way of evaluating you (as a potential credit risk) is to review your credit file and conduct of existing loan facilities.

Therefore, if your past has not been ‘perfect’, it’s time to clean it up before applying for a home loan.

Credit Cards

A well conducted credit card is OK but if you’re always going over the credit limit and/or making late repayments then that can work against you. Normally you are required to provide the last credit card statement with a home loan so you need to ensure you are within the credit limit and the last payment was made on time (before the due date) and be at least the minimum required repayment.

For some applications, you may be required to provide more than just the last statement so the longer your conduct has been good, the better it is for you.

Note that it is the credit limit that is important and not necessarily the outstanding balance when applying for a home loan. Therefore, it may be good to get your credit limit reduced prior to applying for a home loan.

Personal / Car loans

A well conducted personal/car loan is OK but if there are late or missing repayments then it will count against you.

When applying for a home loan, you will be required to provide the last statement for your personal/car loan so it is important to show a good repayment history. A home loan lender will use your existing loan conduct as a measure of determining whether or not they believe you can continue this conduct through to a home loan. If you show regular missed or late repayments on an existing loan then a new lender may consider this as an indication of how you might conduct yourself on a new loan.

Loan applications

Too many loan applications in the past 12 months does not count in your favour when applying for a home loan. This is not limited to just home loan applications but also consumer credit such as credit cards and personal/car loans. Too many applications is not good.

No enquiries on your credit file

Maybe it’s a sign of our modern society but no existing credit applications may also count against you. If a lender cannot see that you have existing credit, even if this maybe just a credit card and/or a car loan, then the lender may deem that you do not have enough history to show that you a good ‘risk’ to lend to.

Defaults and other credit issues

Any past credit ‘issues’ will count against you if they still appear on your credit file. Lenders do not like bad credit so if they have any doubt they may not approve your home loan application. Being young and inexperienced and not doing the right thing (for example) on a car loan can come back to work against you for many years to come. You need to establish credit enquiries, have loans and/or credit cards and conduct them sensibly to then make your home loan application pass through credit assessment smoothly

Being able to clear up any if not all the marks you may have on your credit file can go a long way to helping you get the home you've been dreaming of. 

Posted in: Home loans

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