Buying a new home is a tricky endeavour. It involves looking at various options, finding the right house that suits your budget and finally, applying for a loan. And then, you are denied of that? Why? Because your credit score is too low. How come this figure matter so much? Well, your credit score gives the lender an estimate of the amount you can repay monthly. So, what criteria does it operate on?
Let us find out all about having a good credit score and applying for mortgage.
A credit score is a four-digit figure that conveys your credibility to the lender in repaying the loan. It holds you accountable for your past purchases and payments. The lower the credit score, the more is the risk of defaulting in repayment of your debt on time. It is a picture of your entire financial history.
Credit bureaus, credit card companies and banks, that are your potential lenders, utilize various methods to calculate your credit score. It includes mortgage, education loans, car loans, line of credit and business loans. Veda is the largest credit reference bureau in Australia and assigns a ‘VedaScore’ to people based on their credit history and the type of lenders they’ve dealt with in the past.
Every transaction you made from your account is used to calculate your score depending what profit or loss your action brought to the bank. The scores range from 0 to 1200. The higher you score, the higher goes your reliability as an applicant.
A summary of veda scores:
An average Australian has a score of 649. The older you are, the bigger score score is expected from you.
Since your credit score depicts your ability to repay a loan, a poor number can lead to outright rejection! The lenders are discouraged by your low score and thus a higher score is necessary to purchase your dream house with benefits.
Your credit score is affected by anything that is negative on your credit history, such as:
It is much easy to earn a higher credit score if you stay in the same house for a minimum period of one year.
At times, even when you owe no debt or you have learned from your past mistakes, your credit score refuses to reflect it. However, it is not impossible to get a mortgage loan with a bad credit score. There are certain ways in which one can still apply for home loans with a bad credit score.
The essential step to get a low interest rate on your future home loan is to pay back on time, each time you take a loan for utilities, education or mortgage. It is necessary to maintain a good track record to result in a higher cumulative credit score. So, as soon as you decide to buy your dream house, begin working on that nasty credit score of yours. You will reap the benefits of a good credit score in future with lower rates of interest that you would pay off easily.