Can your credit score affect the chances of getting a home loan or lowering the interest rates on the mortgage? Let us understand how the system works and what factors influence a better deal.
How are credit scores calculated?
Australian lenders don’t publish their credit criteria; hence it’s not easy to determine the specific credit score you require to qualify for the home loan. However, there is no definitive range to be eligible for a home loan. Australia’s three major credit bureaus have their distinctive credit scoring algorithms to determine positive and negative behaviors. The scales with which they compare are different.
Let’s take the example of Equifax:
Your lenders use Equifax score or your credit score to determine the risk of offering a loan. All of these are based on the information you have provided in your application, along with the credit file.
Equifax’s score has benchmarks that can be employed to determine your eligibility. The agency calculates the score based on the information filed in your credit report at a specific point in time.
In short, a higher credit score improves the chances of getting loan approval.
Will I be eligible if I have a bad credit score?
A bad credit score isn’t necessarily a death sentence for your dream of owning a home. However, this could lead to a higher interest rate. You can make this an opportunity to begin rebuilding your credit history.
What factors affect your credit score negatively?
- Applying for several credit cards or loans can negatively affect your credit score. It also indicates that you are desperate for cash. The same goes with letting too many lenders pull your file.
- Any writs or court appearances relating to debt will negatively impact your credit score.
- Late payments. A single late payment might not affect your score, but a pattern definitely will.
How can I increase my credit score?
- If you intend to boost your credit score, then paying on time is the best option.
- Before providing you with the loan, lenders will want to see whether you can handle your debt or not. So having a debt under control can help.
- Having good debt indicates a positive lifestyle.