How one magic number could get you a better home loan
When you apply for a new home loan or to refinance your existing one, lenders will not only assess your borrowing power, they’ll also check your credit history for your credit score, in order to decide whether or not you’re worth extending credit to/ lending to.
The availability of more data through Comprehensive Credit Reporting (CCR) has given lenders the ability to see your past loan repayment conduct, with a month’s lag in reporting period.
So, if you missed a credit card or loan repayment, month or more prior to your home loan application, the lender will be able to see this. And if you’re are rate shopping by submitting applications with multiple lenders over a short period, not only will the lender know, it’s likely to have a negative impact on your credit score as well.
Some credit reports give scores out of 1,200, as a rule of thumb a score above 650 is good while anything above 830 is excellent. If your credit report gives scores out of 1,000 then above 540 is good and above 690 is excellent.
Why does this matter, presently, prime lenders offer tiered interest rates based on loan to security ratio (LVR), with CCR in place, there’s a possibility that lenders will eventually move to offer home loan rate discounts based on an individual applicants credit score.
Increase your chances of getting the best home loan rate on offer by taking care of your credit score today. Here’s a few suggestions for maintaining an excellent credit score;
Check how your home loan compares
1. Check your credit score
Sometimes, credit providers can provide incorrect information, such as listing you in credit default, listing the same debt twice or sometimes you may have a fraudulent account created in your name.
That's why it’s crucial you check your credit report at least once every year. If something seems inaccurate, contact your financial institution to see if there has been an error, then ask them to rectify it.
2. Pay off your debts
If you have a credit card that you are only paying the minimum every month, you may want to think about boosting those repayments, or reducing your credit limit.
Making a significant repayment to an outstanding debt will do wonders for your credit score.
3. Pay your bills on time
If you regularly make bill payments on time, this can positively impact upon your credit score.
Showing that you are someone, who is conscientiously working toward repaying your debts, is a positive indicator that you are not a financial risk to potential lenders.
4. Don’t apply for multiple loans
Getting pre-approval from multiple lenders may seem like a great idea when chasing the best home loan rate, but applying for loans with multiple lenders over a short period can harm your credit score.
Whilst applying for multiple loans can impact your score negatively, multiple comparisons like what loansHub undertakes when a borrower applies, will not make any difference.
5. Determine eligibility before applying for a loan
Just like applying for multiple loans can hurt your credit score, being rejected by a lender can also leave a mark. Before you apply for a home loan, try to determine whether you will be approved, this way you won’t have to justify your declined applications with consequent lenders.
Check your borrowing power, figure out the fees and charges associated with the loan, and determine the total cost, then honestly ask yourself whether you can afford it before submitting an application.
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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.