With Australia moving towards an open banking system, a good credit score will likely be used by banks to rate the quality of business, you as a customer will represent before they offer you one of their loan products.

For a borrower, this means getting a better interest rate with your home loan if your credit score in ranked higher, and borrowers ranking will be underpinned by positive credit reporting (CCH).

Once CCH is fully implemented and utilised by all financial institutes, banks, credit unions and other lenders will start to view borrowers with higher credit scores more favourably, compared to borrowers with poor credit repayment history.

Your credit score number is rated according to the evidence present on your borrowing history and it indicates credit worthiness of you as a borrower, ranging from excellent to below average.

Your position on the credit score range below helps lenders work out how risky it is for them to lend to you and determine is you are worth lending to: 

• Excellent - you are highly unlikely to have any adverse events harming your credit score in the next 12 months

• Very good - you are unlikely to have an adverse event in the next 12 months

• Good - you are less likely to experience an adverse event on your credit report in the next year

• Average - you are likely to experience an adverse event in the next year

• Below average - you are more likely to have an adverse event being listed on your credit report in the next year

If your credit history is less than perfect, you need to proactively start working on improving the score, especially if you want to get the best home loan rates on offer when applying for mortgage.

There are a few things you can do to boost your score and become more attractive to a lender and these suggestions will also increase the chance of getting your home loan application approved by a mainstream lender, which can mean lower interest rates without any risk loading.

Steps you should take, months prior to applying for a mortgage, in-order to improve your credit score.

• Clear any past due loan or credit card balances as well as payout and close all interest free facilities (these include buy-now-pay-later accounts) that you have applied for within the past two years.

CCH reporting will cover types of credit products you have held and transacted on in the last two years, so it’s important to pay all debt repayments on time and not just when applying for a home loan.

• If you have multiple credit cards, compare all your existing accounts to see which once gives greatest value, be it the card with the best points per dollar spent or a basic one with no annual fee. Select the best value provider to keep open and close all other if you have the capacity to payout any outstanding balance.

Note, a portion of your credit score is based on your credit repayment history and leaving a small credit card open gives you the benefit of the history they represent.

Remember, high credit card limit may reduce your mortgage borrowing power so reduce your credit card limit to the minimum allowable at least three months prior to submitting your home loan application.

• If it’s not possible to pay off your credit cards, consider setting a repayment plan to help you reduce the balances and as the balances decrease, reduce the limit progressively so that you don’t end up adding new charges to the card again.

If refinancing, you should consider consolidating and closing your credit cards if there’s sufficient equity available in your property.

• Obtain and review your credit report at least four months in advance of applying for a home loan. If you have items showing up on your credit report that you know have been paid, request that these items be removed.

Sometimes, overzealous credit providers can be quick on the trigger and list a default for a missed payment or list the same debt on your file multiple time or there could be a sinister reason like fraud being committed using your personal information.

If you come across information on your credit file that you are unsure of or know not to be your doing, contact the finance provider immediately and request that the error be rectified. Credit bureaus normally work to fix the report within 30 days once a request is made.

Consumers are entitled to access their credit file as it’s important for borrowers financial well-being. You can request a copy of your credit report from these credit reporting bodies:

• Equifax, phone 138 332

• Experian, phone 1300 783 684

•  illion, phone 1300 734 806

A credit reporting body has to provide on request, a free credit report to consumers once every 12 months. You can also get a free copy of your consumer credit report if you are declined credit in the past 90 days or you want to confirm that any credit related corrections you requested have been completed.

Credit reporting bodies may hold different information about you, so you may need to request a copy of your credit report from each credit reporting body separately.

In today’s world of easy credit, sometimes adverse entries get placed on consumers credit files which may cause them to think that’s the end of their home ownership dreams. It doesn’t have to be.

• When jointly applying for a loan and one applicant has better credit than the other. Where they have sufficient borrowing capacity, that individual can be designated as the primary borrower on the loan.

  The ownership of the property can still be placed in both names by asking the lender to either consider the application as a single borrower with non-applicant spouse or to accept the non-borrower as a collateral guarantor.

These suggestions can decrease the amount you will be approved for as most lenders will apply dual cost of living against the single income used to service the loan. It should also be noted that not all lenders will consider this structure and it will be dependent on individual lenders credit policies.

If you have any questions or concerns about your borrowing power, please request a call back using our contact form.

We are here to help.