If you’re trying to land yourself a pre-approval to buy a property but are unfamiliar with your credit score, then unfortunately you’re all but going in blind.
In simple terms, your credit score or credit rating is a number that summaries your entire financial history. Derived from your credit report, it covers a wide range of things like the amount of money that you’ve borrowed or enquired to borrow, and whether you have a history of making repayments on time. A number of factors can influence your credit score, with long lasting effects that can have drastic results years later.
Whether you realise it or not, your credit score can affect everything from accessing ‘Buy Now, Pay Later’ services like Afterpay, the types of interest rates offered to you, and getting approved or declined for a home loan application. This all important number can drastically affect your quality of life, so understanding it and maintaining it is considered to be very important when it comes to all things finance related.
Your Credit Score Explained
In Australia, there are three primary credit reporting agencies: Equifax, Experian and Illion. As a result, your individual credit score will sit somewhere between 0 and 1,200, depending on which agency you are using to check your score, as not all of the ratings issued mean the same thing.
As a result, what constitutes a ‘good’ credit score all depends on who you’re asking. The general rule of thumb is that the higher the number listed on your credit score, the better, as this indicates a reliable track record on your behalf when it comes to borrowing – making you a favourable candidate for future loans, and a lower credit risk in the eyes of a lending provider.
The higher your score, the easier you will find it to not only get approved for loans, but to leverage yourself as a good borrowing candidate who is in the position to negotiate on things like interest rates, fees and terms – essentially, you’re exactly the type of customer that a bank wants. In comparison, those with a poor or below average credit score are a minefield of red flags in the eyes of a bank or lending provider, making it much more difficult to get approval for just about any type of loan.
Credit reports are known to be ruthless. According to data released by Experian, in the event that you miss even one credit card repayment, your credit score could drop by a hefty 22% – even if you’ve previously never missed a credit card repayment before. The drop increases to 26% if you miss two repayments, and as much as a whopping 42% should you miss three or more within three months.
Missing a repayment can result in a default on your credit report, and depending on the nature, can take anywhere between five and ten years to be removed. Many consumers simply don’t realise what can constitute as a default in the eyes of a credit reporting agency, with some of the more common offenders that can negatively affect your credit score including the following –
- Late payments of over sixty days
- Late payments of thirty days over several months
- Multiple loans and credit accounts with overdue payments
- Loans and credit accounts in arrears
- Unsecured personal loans
- Consumer payment defaults
- Applying for short-term credit and loans
- Applying for or having active ‘Buy Now Pay Later’ services
- Multiple applications for loans or credit over a short time period
- Applying for lesser types of credit or lenders
- A short credit history with minimal information listed
- Lower credit profile of your residential area
Thankfully, the good news is that there are a number of other methods to maintain or improve your credit score as well, with just a handful including the closure of credit cards that you don’t need, minimising existing loans, infrequent loan applications, and of course, paying your bills on time. However, it’s important to note that your credit score isn’t the be all and end all when it comes to getting approved for a loan, as it’s only one of many sources of information that lenders use to assess whether to give your application the green light or not.
Other factors such as your income, savings records and how well you manage your expenses could help them determine whether you meet its internal assessment criteria, but it’s also important for applicants to do their homework before submitting an application to avoid any nasty surprises in relation to their credit score. However, if you’re unsure how to navigate this process, the help of a reputable mortgage broker can prove to be invaluable.
Finding Help To Navigate The World Of Home Loans
The big attraction of buying your own home is just that – it’s yours, once you’ve paid back the banks of course. Apart from having somewhere to live, the quest for home ownership is also about having a long term investment strategy. If we’re looking at it from the viewpoint of decades instead of months, generally house prices do rise, and so does the value of your investment.
With a background in banking, finance, business development and project management, there’s no better advocate to have on your team than Nikki Berzin. As a fully qualified mortgage broker and director of Cherry Lending & Finance, Nikki is passionate about all things finance, and empowering her clients with the tools to hit their property goals is what she does best.
If you’re looking to get into your first home, purchase an investment property or even want to look at your options for refinancing, the first step is starting the conversation. Get in touch with Nikki today, or call her directly on 0427 374 155 to bring your mortgage dreams to life.
Disclaimer: Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product. Subject to lenders terms and conditions, fees and charges and eligibility apply.
Credit Representative 499652 is authorised under Australian Credit License 389328.