Understanding and Managing Your Credit Score

When planning to buy property in Australia, you’ll find yourself juggling numerous numbers:

the deposit you’re saving, your borrowing capacity, closing costs, your total budget, and anticipated monthly repayments. Amidst all these figures, it’s easy to overlook a critical number – your credit score.

If you’re diligently tracking all your other numbers but unsure about your credit score, you’re not alone. Approximately 80% of credit-active Australians are unaware of their credit score. Yet, this figure is crucial, especially if you’ve faced challenges in paying bills or meeting repayment deadlines.

 

The Significance of Your Credit Score when trying to get an Australian Home Loan

Your credit score is a number between zero and either 1000 or 1200, depending on the credit reporting agency. Lenders use this figure to assess whether to grant you credit or a loan, determine the amount to lend, and set the interest rate. Essentially, lenders prefer offering better deals to individuals less likely to default on their loans. A higher score increases your chances of approval and securing favourable terms.

 

How Is Your Credit Score Calculated?

Your credit score is derived from the financial and personal information in your credit report. An algorithm processes various variables to generate your score, considering factors like:

– Your overall debt and how you manage it

– The number of loan applications you’ve made

– Your credit cards and current credit limits

– Accounts you’ve opened or closed

Credit reports also detail any financial hardship arrangements, such as loan deferrals and reduced payments. Previously, these arrangements negatively impacted your credit score by showing you in arrears. However, under current regulations, as long as you adhere to the terms of any hardship arrangements, your credit score remains unaffected.

 

What’s Considered a Good Credit Score to obtain a favourable home loan?

Credit scores in Australia vary depending on the reporting system:

– For scores out of 1200: Above 853 is excellent, while above 661 is good.

– For scores out of 1000: Above 690 is excellent, while above 540 is good.

 

How to Improve Your Credit Score

If your credit score isn’t where you’d like it to be, there are steps you can take to improve it. Begin by obtaining your credit report to check for errors and report any inaccuracies to the credit reporting agency, providing necessary documentation.

 

Top tips for boosting your score right now!

– Lower Your Credit Card Limit: Reducing your available credit can positively impact your score.

– Limit Credit Applications: Multiple credit applications can negatively affect your score, so apply sparingly.

– Timely Payments: Ensure you pay your rent or mortgage and bills on time.

– Manage Existing Loans: Pay off existing loans, including credit cards, promptly each month and try to pay more than the minimum amount due.

 

Taking the First Step to improving your score

The first step to improving your credit score is to request your credit report. Monitoring this important number can help you understand your financial standing and take necessary actions to improve it and help you get an Australian home loan.

 

Get Expert Advice From A Trusted Advisor

If you’d like to discuss how to position yourself for the best mortgage deal, please give us a call. At Specialist Mortgage, we’re here to guide you through every step of securing an Aussie home loan, ensuring you’re in the best possible position to achieve your property goals.