It may not be something you think about all that often, but your credit rating is an important part of your financial future and can have a big impact on the amount of choices available to you when you’re trying to find the best home loan for your needs. If you’re hoping to purchase a property soon but are not sure how to improve your credit rating, there are a number of ways you can improve your credit rating. Here we detail 5:
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Check your credit history
The first step is to actually have your credit history examined. After all, you can’t fix a problem you don’t know about. Utilise the services of a credit agency such as VEDA who will be able to alert you to any issues in your report. A copy of this information is generally free and it’s a worthwhile step to take if you’re not sure about your credit history. Once you receive the report spend some time checking it thoroughly for any discrepancies – you want to ensure that no one has used your identity fraudulently or to apply for a credit card without your knowledge. It’s usually a good idea to have your credit score checked on a yearly basis so that you can be certain no mistakes have been made.
Pay on time
If there are any issues with your credit rating then it’s important to take steps to start improving it quickly. The first thing you can do is ensure that you get back on track and pay all financial commitments on time in the future. Make all loan and credit card payments on time, as well as expenses such as rent and utilities. As of next year, banks and other financial institutions will start having access to any data that relates to your repayment history, so it’s important that you keep this in mind and honour all of your financial commitments on time, every time.
Pay off all your debts
Similarly, start doing what you can to pay off all outstanding invoices or loans so that you become completely debt-free. For example, set up automatic bill payments from your account so that not only do you avoid late payments, but also so that you pay extra each time, with the money taken straight from your account before you have a chance to spend it. Reduce the amount of credit cards you have and work to pay out any small personal or car loans as well.
Don’t apply for many loans
Another way to improve your credit rating is to be careful when shopping around for loans. By all means do your research into various options, but be very cautious about actually applying for them. Any time you make an application and it’s declined, that gets put on to your credit report. Ensure that you only apply for loans that you are very confident will be granted.
Save a deposit of more than 20 per cent
You can also ensure that a loan is more likely to be approved by saving up more than the standard 20 per cent deposit. Any time you need to borrow 80 per cent of a property’s value or higher, the bank will need to get approval from a mortgage insurer, who protects the lender in case you default on the loan. Often the cost of using a mortgage insurer is passed onto you (known as Lender’s Mortgage Insurance) and can be hundreds or even thousands of dollars. If you have a higher deposit available then the bank doesn’t need to get the mortgage insurer involved and you have a greater chance of having the loan approved as a result.
Jessica Darnbrough is head of corporate affairs and company spokesperson at Mortgage Choice. She is passionate about property and helping potential buyers understand the home loan options that are available to them.