Boosting your credit score when applying for a home loan - Kredi Home Loans

Insights, Loan basics

Boosting your credit score when applying for a home loan

Oktay Sengoz

|

05/07/2023

|

2 mins read

Obtaining a home loan is a significant milestone in achieving the dream of homeownership. One essential factor that lenders consider when approving a home loan is your credit score. In Australia, a good credit score not only improves your chances of securing a home loan but also enables you to access better interest rates and loan terms.

Here’s how to improve your credit score:

Understand your credit score

Before embarking on the journey of improving your credit score, it's crucial to understand how it is calculated in Australia. The most commonly used credit scoring models are the Equifax Score and the Experian Credit Score. These scores range 2 from 0 to 1,200 and 0 to 1,000, respectively, with higher scores indicating better creditworthiness.

Obtain your credit report

Start by obtaining a free copy of your credit report from a credit reporting agency such as Equifax or Experian. Review the report carefully to identify any errors or discrepancies that could be negatively impacting your credit score. If you notice any inaccuracies, promptly contact the credit reporting agency to rectify them.

Pay bills on time

Consistently paying your bills on time is one of the most effective ways to boost your credit score. Set up automatic payments or reminders to ensure you never miss a payment. This includes credit card bills, loan repayments, utility bills, and any other financial obligations you have.

Reduce credit card debt

High credit card balances can harm your credit score. Aim to keep your credit card utilisation ratio below 30%, meaning you should not utilise more than 30% of your available credit limit. If possible, pay off your credit card balances in full each month to demonstrate responsible credit management.

Minimise credit applications

Each time you apply for credit, it leaves a mark on your credit report. Multiple inquiries within a short period can indicate financial distress to lenders, potentially lowering your credit score. Minimise unnecessary credit applications, particularly when you are preparing to apply for a home loan.

Maintain a stable employment and residential history

Lenders prefer borrowers with a stable employment history and residential address. Continuity in these areas demonstrates reliability and reduces perceived credit risks. Avoid frequently changing jobs or moving residences, as this can be viewed negatively by lenders.

Communicate with creditors

If you are experiencing financial difficulties that might affect your ability to make timely payments, it's essential to communicate with your creditors. Many financial institutions offer hardship programs that can provide temporary relief and prevent further damage to your credit score. Proactive communication can demonstrate your commitment to resolving financial challenges.

Improving your credit score in Australia is a gradual process that requires discipline and consistent financial management. By following the strategies outlined in this blog, you can enhance your creditworthiness and increase your borrowing capability for a home loan. Remember, a good credit score not only improves your chances of loan approval but also opens up opportunities for more favourable interest rates and loan terms.

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