Set a date to get to know your credit score. It could help you land a lender’s tick of approval for your home loan.
Applying for a home loan involves sharing a few personal details with a lender – information about your income, your household expenses, and of course, the home you’re planning to buy or refinance.
But that’s not all a lender will look at.
Banks also want to know your credit score – that’s a number compiled by credit reporting agencies, which sums up how well you’ve handled credit and bills in the past. It’s like your financial footprint, and your score represents your level of risk to a lender.
Sizing up your credit score
A variety of information is used to compile your credit score. The amount of credit you’ve borrowed, whether you’ve made repayments on time, and any skipped repayments all go into the mix to determine your score.
The final figure usually falls between 0 and 1,000, though to simplify things your credit score will sit in one of five bands and given a ranking of:
▪ Excellent: 800-1,000
▪ Very good: 700-799
▪ Good: 625 to 699
▪ Okay: 550-624, or
▪ Below average: 0-549
The good news is that there’s no mystery about your credit score. Head to sites like Credit Savvy, where you can check out your score for free.
Your credit score is just one piece of the picture
It’s easy to assume that a high credit score will boost your chances of home loan approval. It can certainly help, but there are no guarantees.
That’s because your credit score is just one piece of the picture that a lender will form about you. And, as different banks each use their own system of assessing loan applications, it’s hard to say what sort of score will – or won’t – get you over the line with a particular lender.
Nonetheless, the importance of your credit score in landing a home loan makes it a number worth nurturing.
Check your credit score regularly
One of the simplest ways to keep your score healthy is by paying bills on time and keeping up with regular loan repayments.
Make a habit of regularly checking in to see how your credit score is shaping up – it can go up or down even if you haven’t changed your money habits. Applying for a home loan with several different lenders, for instance, can have a negative impact on your credit score. That’s why it’s better to focus on finding the loan that’s right for your needs, and make just one application.
Your credit score can also change if someone steals your identity and applies for credit in your name. Regularly reviewing your credit score can help to protect you against fraud.