Your credit file plays a major part when you apply for a home loan, but not everyone knows what their credit score is or what affects their score.

images (1)Your credit score is based on a range of information, such as repayment history, overdue debt as well as the number of credit enquiries you have made. Lenders use this information when determining your credit worthiness and the likelihood of you making your home loan repayments in the future.

If you have a low score, it could affect your ability to obtain a home loan, however, there are ways to improve your score and improve your chances of obtaining a home loan down the track. Listed below are the top 5 factors that affect your credit score.

Multiple credit enquiries

You may not realise that shopping around for credit could have a negative impact on your credit report. Each time you submit a loan or credit application to a lender, it will be noted as an enquiry on your credit report. Lenders don’t know if this enquiry resulted in you taking out the loan, changing your mind or being declined. Lots of credit enquiries could be an indication that you are in financial trouble and result in the lender being more cautious about your application.

How to fix: Before applying for credit, whether it be for a home loan, car loan, credit card or interest free deal, check your credit file. This small step is so important to make sure you are eventually approved for the finance you need. If you are serious about getting a competitive home loan, it is best to avoid applying for any credit until you know exactly what is on your file.

Too much debt

The more financial commitments and personal debt you have, the greater impact it will have on your loan application. These will be listed on your credit report as ongoing commitments so there is no hiding the fact that you have them. Credit cards can greatly affect your borrowing ability and the more credit cards you have and the larger the limit, the more it can restrict your borrowing capacity. Even if you have $0 owing on the cards, the lender will still assess your application using the credit card limits.

How to fix: If you have a number of credit cards with large limits, the best thing you can do is pay off as much owing as you can, reduce the limit and if you have credit cards that you are not using, cancel them.

Before applying for a home loan, seriously look at your ongoing commitments and work out if you can cut them back at all. If not keep this in mind as a possible course of action if you are not able to borrow the amount you would like to due to repayment affordability with all these included.

Not paying bills on time

An overdue bill that is at least $150 can be listed on your credit report as a default once it is 60 days or more overdue. Repayment history is being brought into credit reports gradually so before long lenders will be able to see the repayment history on your credit contracts like credit cards, personal loans and home loans. If you have defaults or your repayment history on your credit report shows you are always late, it could impact your chances of getting a home loan.

How to fix: The only way to fix this is to pay your bills, credit cards, personal loan and home loan repayments on time, every month. Set a reminder on your phone the day before it is due or use direct debit and schedule automatic repayments. This way, you won’t have to worry trying to remember when they are due. If you do get a default or repayment history negative markers we can assist you with their removal.

Not fixing errors

Errors can sometimes appear on your credit report. We have seen duplicate or unauthorised enquiries, incorrectly listed defaults and court actions. We can assist you with having these incorrect listings removed. If you don’t, it could negatively affect your credit score and could impact your chances of obtaining a home loan or other credit in the future.

How to fix: Check your credit report every 12 months so that you are up to date with what is listed and any errors can be fixed straight away. Contact us to have an advocate dispute the listing, and if incorrect, get them to remove or change it.

Your credit report plays a major part when applying for a home loan. If you have issues on your credit report don’t despair, there are excellent companies that can assist you to get your credit file in tip top shape before applying for a loan.