The most important part of the entire home buying process is securing a mortgage. That’s why if you’re considering buying a home now or in the near future you need to be aware of your credit score.
Banks use this number to help decide whether or not they should lend to you – and if yours is low, getting approved for a home loan could be an uphill battle.
What is a credit score?
Your credit score is a number from 0 to 1,200 that compares you to the rest of the population as a borrower. The higher your score is the better.
This number is calculated automatically taking into account:
When you apply for a loan, banks will use a number of metrics to determine your risk profile as a lender – in other words, how likely you are to be able to meet repayments. Your credit score is one of the major metrics.
What credit score do I need to buy a home?
It’s impossible to say what score you need to buy a home as banks also consider a range of other factors, such as your income and the size of your deposit. However, you can use this guideline by Equifax to get a rough idea:
The average score in Australia is 550, so if yours is above that you shouldn’t have much trouble getting home loan approval, provided all your other ducks are in a row.
How can I find out my score, and if it’s bad can I fix it?
Finding out your credit score is easy – all you have to do is visit the website of one of the following credit reporting bodies and fill out a simple form:
If your credit score is low, luckily with a little time and effort you may be able to improve it. First you should check if all the items in your credit report are correct, and if they’re not query them with a credit reporting body. Next, try not to move employer, change address or apply for credit if you don’t need to. Then pay off all your debts on time, and make sure all of your defaults are settled.
If you’re thinking about buying a home in the near future it’s worth checking your credit score right away. It’s always best to find out what your score is now and have more time to improve it if need be than to find out about your score when it’s the reason your home loan application is denied.