Credit scores and mortgage approvals

“Does this potential borrower present an acceptable risk for me as a lender?” 

One of the key measures helping them reach a conclusion on whether to grant or reject a home loan application is your credit score.

While managing your credit score takes some effort, there are ways to improve the figure and help you get the best possible outcome from your lending arrangements. 

There are three credit agencies in Australia that look after monitoring credit activity and issuing credit scores. They are Experian, Equifax and Illion (formerly known as Dun and Bradstreet). Depending on which credit reporting agency is generating your report, your credit score will be between zero and either 1000 or 1200.

The higher your score, the less risk you present to a financier. Low risk borrowers have more choice of lenders and can often secure better rates and conditions on their home loans.

Conversely, a low score can be detrimental to you getting a loan approval or may result in you needing to accept worse terms on a property loan.

It also documents times when you approached your lender due to financial hardship and what arrangements were made to help you manage through these periods.

It also tracks defaults on loans and payments – including on credit cards or for utility bills . These missed payments remain on your credit report for up to five years, so it’s worthwhile staying on top of these.

A credit report notes how often you’ve applied for loans, as well as any loans you’ve gone guarantor for as well.

Firstly, get a copy of your credit report and check there are no errors. If it contains a mistaken element that’s impacting your score, there are ways to go about remedying the situation.

Also, look to cancel as many credit cards as possible and look to lower the credit limit on the cards you do retain. Be sure to pay off your outstanding credit card balance in full each month well before the due date too. If you can’t pay it in full, then covering the minimum repayment amount is essential at the very least.

You should also ensure you are paying all bills and other liabilities before their due dates. This includes utilities such as power and gas, as well as any loan repayments. Now is the time to set up direct debits and auto payments to be certain you’re never late.

Don’t make multiple loan applications in a given period either. Whenever a loan application is made, it counts against your risk profile.

Making meaningful change to your credit score takes time and that’s why expert guidance from a professional can help. Contact our expert team and we’ll discuss strategies to help improve your credit score while also identifying the right type of home loan products for your personal circumstances.