Real Estate

Improve your credit before you get a mortgage

One of the best ways to improve your chances of obtaining a home loan is to improve your credit score. This is because a better credit rating can give you access to better interest rates and more beneficial home loan products.

Here is a list of some quick tips to help you get the best credit score possible. While there is no guarantee that all of these options will immediately raise your credit score, they can help you establish habits that will strengthen your credit score.

Show that you can pay your bills on time, every time

Lenders / credit providers will want to see that you can pay off a home loan on time. So, here is a list of bills that you need to pay on time, always:

>> Your credit cards;

>> Your rental;

>> Your medical and utility bills; and

>> Any other service that a collection agency may use to recover delinquent accounts.

If you miss a payment date for a few days, call the service provider right away to make the payment and don’t be afraid to ask the provider for a one-time waiver.

Check your credit rating

You should regularly check your credit report with a credit reporting agency (such as Veda Advantage and Dunn and Bradstreet), as:

>> Give you an idea if you have any history of defaults or negative payments recorded in your report;

>> Give you time to correct the credit report before a lender / credit counselor accesses your report; and

>> Allows you to check your credit score with a credit reporting agency.

Note: You should be aware that due to changes in the Privacy Act in March 2014, lenders / credit providers have the ability to access your credit reports and can view the last 24 months of your payment history.

Keep your credit available

Before applying for a home loan, do not open any other cards or lines of credit. This is because lenders / credit providers will see you as a risk if you suddenly apply for loans for cars, electronics, furniture, etc.

Also, avoid closing your credit cards or other lines of credit. Instead, consider paying off your balances, as lower debt will improve your debt-to-credit ratio.

This is best illustrated by the following example:

Having a total debt of $ 4,000 with an available credit of $ 20,000 will look better than having a debt of only $ 500 with an available credit of $ 800.

Establish a history of savings

If you are borrowing more than 80 percent of the property’s purchase price, you will need to meet the “genuine savings” requirements of the lenders / credit providers. Your savings should add up to about 5 percent of the property’s purchase price.

For example, at a purchase price of $ 700,000, you will need to have savings totaling $ 35,000.

Note: Saving a larger deposit should help reduce or avoid your “Lenders Mortgage Insurance” (LMI) payment and your lender / credit provider may offer you a more competitive interest rate.

Avoid applying with too many lenders / credit providers

Avoid submitting your home loan applications to several different lenders / credit providers at the same time. It is because these loan applications will appear on your credit report. You just need to submit your mortgage loan application:

>> After you have compared lenders / credit providers; and

>> After you have decided to go with a particular lender / credit provider.

Your job stability

If you’ve had the same job for several years, then this is a big tick. Therefore, before applying for a home loan, try to establish a stable employment history, as it will allow you to make regular repayments of the loan.

If you’ve changed jobs recently, don’t worry. You can satisfy the requirements of lenders / credit providers if:

>> You have played a similar role; and

>> You’ve been in the same industry.

Disclose all information

Lenders / credit providers may think you have other debts that have not been disclosed. Therefore, always be honest and disclose all information, as non-disclosure of relevant information may result in your home loan application being rejected.

Seek expert and professional advice

All of these tips should help you improve your credit score. However, you should speak with a professionally qualified and knowledgeable finance broker who can help you create a personalized credit enhancement plan. Establishing this relationship with a financial broker will help you determine which potential lender / loan provider best meets your needs.

All the best!

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