Credit Profile, Score, Screening – If you’re thinking about getting a home loan, these are important terms you’ll need to learn more about.
What is a credit score?
All credit active people have a profile. This is a summary of your history with all the credit providers you’ve dealt with and serves as a record of how well you’ve managed your accounts, such as loan payments, past-due debts, how often you’ve applied for credit, and types. of loans or credits that you have requested and the frequency of your requests.
How does it work?
Credit reporting providers summarize your profile into something called a credit score. The score is between 0 and 1,200, where the higher the number, the more likely you are to be able to repay a loan. Lenders look at your credit profile and score to learn about your credit history and behavior, and see if you can get a new loan. This information reassures lenders that you are good at repaying those you have borrowed from, ie you are a ‘low risk’ customer.
A good score not only makes you more likely to get your home loan application approved, it also means you’ll qualify for a better interest rate. Of course, the other side of the coin is that if you have a low score, you’ll be less likely to qualify for new loans. This protects the lender and those with low scores from taking out additional loans and from overextending and getting deeper in debt. In short, you will need to have good credit to get your home loan application approved.
So it’s a good idea to first find out what your credit score is before applying for a loan, and give yourself time to improve it before you approach a lender.
How to check your score?
A great place to start your research is ASIC’s MoneySmart site. You can get a free credit score evaluation from several online providers, which are listed on the MoneySmart site.
How to improve your score?
To improve your credit score, first take a look at your current financial situation and ways to improve it. Building a good credit standing before you apply for a loan can help increase your chances of being approved.
You can improve your score by doing the following:
- lower your credit card limits
- consolidation of multiple personal loans and/or credit cards
- limit your credit inquiries
- pay rent and bills on time
- pay your mortgage and other loans on time
- pay off your credit card in full each month
To avoid surprises, be prepared and know your credit score.