When applying for a home loan to purchase or refinance a property there are a number of factors that the lender will consider in the approval process. Will the borrower have the capacity to make the repayments? What is the current value of the security? And how will it change over time? How much capital or equity is available? What is the borrower’s credit history?
A clear credit history is incredibly important and you’d be surprised how easily your credit rating can be impacted. Any organisation that you owe money to, from a bank to an electricity supplier to a rental company or phone provider can record a default against your name if you have failed to make payments on time. In some cases you may not be aware that a creditor has recorded a default against your name until applying for credit in the future.
In addition to defaults, applications for credit are recorded on your credit profile. This means that all instances where you have applied for a credit card, car loans, personal loans and even rentals impact the credit rating – even if you did not follow through and accept the offer. There have been instances where someone may apply for multiple credit cards and personal loans in the months before seeking finance to purchase property, only for it to negatively impact that application.
Tips to help protect your credit rating:
– Always pay your bills on time;
– Act quickly if you are having trouble making payments. It is best to organise a repayment plan with a creditor before it gets out of control; and
– Research and consider each credit application you make. More applications will not necessarily mean more chances for obtaining credit. In fact it could have the opposite result.
Changes to credit reporting
From March 2014, credit reporting changes came into effect that change how late payments are able to appear on a credit record. It will be possible under these news rules for creditors to record the late payment against your name after just five days. With these new reporting methods it will become increasingly important to stay on top of all required payments.
How can you check your credit history?
Instead of waiting until making an application for credit you can contact credit agencies Veda Advantage or Dun and Bradstreet who can return reports within ten days. Remember requesting these reports does not count as a credit application and cannot impact the report or any others in the future.