When applying for a home loan, your credit score can play a critical role in influencing your borrowing power and therefore affecting your ability to qualify for the loan you need.
By understanding what your credit score is and how it works, you can plan for application success. You’ll learn how to improve your credit score as much as possible, highlighting to your lender that you are capable of meeting minimum repayment requirements for your loan product.
So what is a credit score? How is it assessed, and what can you do to improve your score? Here’s what you should know.
What is your credit score?
A credit score, sometimes also called a credit rating, is a numerical representation of your creditworthiness as a potential borrower. It provides an indication of your reliability when it comes to repaying your debts and meeting financial obligations.
Your credit score draws on information from credit reporting agencies from around the country. Based on your previous financial management, you will be assigned a value that represents how likely it is that you will be able to pay for your loan.
Why credit score is important
For most lenders, a good credit score is an important prerequisite for a home loan. Your score allows your lender to evaluate your repayment capacity and reduce their risk in lending you the funds you need.
If you have a good credit score, you’ll earn a reputation as someone who can reliably repay debts and meet financial responsibilities. This can help your lender trust that you will manage your finances well and be able to make minimum monthly repayments now and in the future. Some lenders may even reward a high credit score with extra loan features!
If you have a low credit score or a bad credit history, obtaining mortgage approval can be much more difficult. While it’s possible to secure a loan with bad credit, you may need to work with a specialist non-conforming lender, and you may be asked to pay a higher interest rate to account for financial risk to the lender.
How to improve your credit score
Your credit score is something you build and influence over time. If you have a bad credit history, there might not be anything you can do, but you can always take better financial management steps to improve your future score.
Be aware of your regular income and expenses, and learn how to budget effectively with the funds you have. Limit your spending where you can, and start a savings account that you contribute to regularly.
Always endeavour to pay your bills on time, and where possible, aim to clear any outstanding debts. Avoid applying for too many credit cards, and lower the limit on the cards you already have. Check that your credit file information is correct and up to date.
Need help with your home loan application? Contact the best mortgage broker Melbourne has to offer. Talk to the Our Top 10 team.
