Buying a home is a major decision that can be intimidating for many potential homeowners. It’s important to take the time to research and properly prepare before you take the leap and make such a major financial commitment.
One of the most important factors mortgage brokers deal with when you’re applying for a home loan is your credit score. Knowing your credit score and what it means can help you feel more confident and prepared when you’re ready to apply for a loan.
What Is a Credit Score?
A credit score is a numerical portrayal of your creditworthiness based on your borrowing and repayment history. It is calculated using the information found in your credit report, which is evidence of your credit activities, such as your payment history, the credit you have, how much debt you’re carrying, and how long you’ve had credit.
Your credit score is adopted by lenders to measure your creditworthiness and can affect your ability to qualify for a loan. Generally, the richer your credit score, the better your chances of getting recognised for a loan with a lower interest rate.
In Australia, there are three fundamental credit reporting bureaus, and every time you apply for a loan or credit card, the lender will look at your credit score from each of these bureaus. The most commonly used credit score in Australia is the VedaScore, based on information from Veda, Australia’s largest credit bureau.
How to Improve Your Credit Score
1. Check Your Credit Report
One of the most critical steps when applying for a mortgage is obtaining a credit report. Mortgage brokers use this report to assess your financial situation, determine if you are a good candidate for a loan, and decide how much you can borrow. After all, an accurate and up-to-date credit report is key to getting the best mortgage rates and terms.
As such, it’s important to ensure that the information is accurate and up-to-date. Always request a copy of your credit report so you can check for any errors or discrepancies.
2. Make Repayments on Time
Late and missed payments can remain on your credit report for seven years and harm your ability to get approved for new loans or credit cards. However, not all late payments or missed payments are the same. Some creditors may report late payments more harshly than others, meaning that the impact of a late payment on your credit score may vary.
3. Don’t Close Old Accounts Before Applying
Having a long history of credit accounts is an important factor for mortgage brokers to determine your credit score. For example, if you have an old credit card that you no longer use, leaving it open will help your credit score. This is because having a long history of credit accounts shows that you’ve been able to manage your credit responsibly over a long period.
Final Thoughts
Building a good credit score is a very important step for anyone looking to make the most of their financial future. That’s why paying bills on time is important, as is keeping balances low and applying for credit only when necessary.
Additionally, monitoring your score regularly and correcting any errors on your credit report can also be beneficial. Overall, these valuable tips can help you build a strong credit score and achieve financial success.
Wealthy You is an Australian mortgage company that can help guide you through your home loan process. Our team of mortgage brokers are experts in the field and can provide you with tailored advice to help you secure the best loan for your needs. Get started with us today!
