If you are thinking about getting your first home loan and want to get prepared, understanding your credit report is a good first step. Your credit report has an impact on a lender’s decision-making process. It shows a lender your financial habits and borrowing history, almost like a financial report card.
Comprehensive Credit Reporting (CCR) was introduced in 2019, changing the way lenders reported and viewed applicants credit files. In this blog we will explain everything you need to know about it, what it is covers and the important role it plays in your home loan application.
Understanding a credit reports and why it is important
A credit report is a comprehensive summary of your credit behavior and financial profile compiled by credit bureaus. A credit report includes:
- your credit score
- your credit products
- your repayment history
- your personal information
- any adverse information: defaults, bankruptcy records
- your credit application history
- any other credit reports
Lenders use this report, based on factors like credit applications, debt, repayment history, and bankruptcies, to assess your creditworthiness. A higher credit score shows the lender that you are a less risky borrower. This, in turn, improves your chances of getting approved for a loan and could even result in a better interest rate.
It is important to regularly check your credit report to ensure that the information contained is correct, there are many instances where a credit report can contain a false or incorrect entry.
If you’d like to access your credit report, please get in touch.
What if your credit score is low, can you still get a mortgage?
If you have a low score and bad credit, its still possible to obtain a home loan. Here are some steps you can take:
- Verify your credit report: Ensure your credit report and score’s accuracy by checking for any errors or signs of fraud/identity theft. If there are errors or the information is out of date or incorrect, simply contact the credit reporting agency and request a free correction.
- Contact an accredited mortgage broker (contact us): An accredited finance and mortgage broker can help you explore loan options tailored to your needs and guide you through the application process.
- Use a specialist lendrer: A broker may have access to dozens of lenders and products and may have a solution that your bank cannot offer. Certain lenders specialise in ‘bad credit’ home loans, considering personal circumstances that may have affected your ability to repay in the past.
Specialised home loans often come with less favourable terms due to the higher risk for lenders. This usually means higher interest rates and fees. It’s worth considering taking the time to “repair” or improve your credit score before borrowing to access more competitive loan options.
How can you improve your score?
To ensure you secure a favourable home loan, improving your credit score is crucial. Here are some key tips:
- Manage your credit card: Keep balances low and within the credit limit. Try and pay off balances in full or more than the minimum payment.
- Be responsible: Avoid maxing out cards, make timely payments, and don’t take on excessive debt.
- Don’t apply too often: Apply only when necessary to avoid numerous hard inquiries.
- Regularly review your credit file: Reviewing for changes or errors, promptly reporting discrepancies. If you need assistance, contact financial counsellors for guidance and support in managing finances.
- Pay your utility bills on time: Late payments can harm your credit score. You can automate payments to ensure timely transactions. It showcases responsibility and avoids late fees.
By following these tips and maintaining responsible credit management, you’ll improve your credit score and enhance your chances of securing a first home loan.
What next?
If you’re looking at getting a home loan but need to improve your credit, get in touch with us. We can work with you to find finance suited to your needs.
It costs you nothing to find out what position you are in, call us on 08 9304 9682 or email admin@foxmortgages.com.au to book your appointment. We are available for face to face or video appointments.