Does your credit score really matter when taking a Mortgage or Refinancing?

Out of all the factors that influence your credit scores, there’s at least one that you don’t have to put much effort into: credit history. But even though this may be the easiest credit score factor to maintain, you might be wondering how important it is. Read on to find out.

How credit history affects your credit scores

Credit scores were made to predict credit applicants’ credit behaviour. Unsurprisingly, more information can lead to a more accurate prediction. That’s where credit history comes in.

Credit history is a simple concept: It’s the length of time you’ve had your credit accounts. The longer the history, the better. It gives lenders the ability to see how you’ve managed certain types of credit accounts over the years, and it shows lenders that you have a history of being able to manage credit accounts properly.

What this means is, credit history has a moderate to large impact on your credit scores. This is great news if you’ve had at least one credit account open for some time. But what about people who are building credit for the first time? It can be good news for them as well …

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How to build a good credit history

If you want to build a good credit history, you can start by being selective with the type of credit account you open and manage it wisely. Here are a few best practices for building a positive credit history and maintaining a healthy credit profile:

·       Avoid applying for home loan with multiple lenders. If you’re shopping for a loan and want to see who’ll give you the best rate, getting all applications in within a short period of each other shows that you’re rate shopping and lenders may want an explanation on each application.

·       Make sure that you rarely apply for unsecured debt, these include credit card, personal loans, car loan, ‘buy now pay later’ and if you do, have the means to pay off before interest is due or term expires.

·       Paying your bills in full and on time. These includes non-credit bills as well, such as your utilities and phone bills. (A long credit history doesn’t help your credit if it includes a lot of late payments and defaults.)

·       Avoid regular credit card balance transfers 

·       Regularly reviewing your credit reports (you’re entitled to at least one free report annually) and disputing any errors you find.

If it sounds pretty straightforward, that’s because it is. Good credit practices very often mimic good financial practices. By using credit when you need it and showing positive behaviour like on-time payments, you can rest assured that lenders will view you as someone worthy of lending to.

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This article does not constitute advice; readers should seek independent and personalised counsel from a trusted adviser that specialises in property, a tax accountant and property design specialist.