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What is your credit score, and what affects it?

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Could that late payment on your credit card jeopardise your home loan chances?

With an understanding of your credit score, you'll have a better grasp of how your financial habits and commitments may be affecting the success, or otherwise, of your home loan applications.

What is a credit score?

A credit score is a number calculated by credit reporting agencies and used by lenders to assess your level of risk before they decide whether to offer you a loan. It also helps lenders determine what would be a suitable loan amount for your financial circumstances and possibly even what interest rate you'll be offered.

As you would imagine with a score, you're allocated a number, anything between 0-1200.  The higher your score, the more suitable you are as a candidate for credit. The lower the score, the less likely it is you'll be offered a home loan.

How is your credit score calculated?

The credit score appears as part of a credit report, which is a collation of all the financial transactions you've conducted over time available either on public record or provided by financial institutions or lenders. It includes, but isn't limited to:

  • details of any credit cards you hold
  • how much credit you've borrowed
  • what type of credit providers you've used
  • the number of credit applications you've made
  • unpaid or overdue debts, either settled or that remain outstanding
  • loans for which you may be a guarantor
  • commercial or business loan applications you have applied for since March 2014

Your score doesn't include personal details such as race, gender, nationality, or marital status.

With the introduction of Comprehensive Credit Reporting, your credit file now contains a broader picture of your credit history. Lenders can see both positive and negative information on your credit files, including how frequently you made payments on time and how well you stayed within your credit limit.

Concerned about your credit score? Make some changes.

If your credit score isn't terrific, there's room for improvement. Your score is fluid and will change over time, depending on your level of credit activity.  Here are some ways you can take your score up some points:

  • pay your bills and loans on time
  • avoid making too many loan applications at the one time
  • consider refinancing and consolidating more expensive debt.

Useful reading: Bad Credit and How to Clear It

So the implications are clear. Keep on top of your finances, be consistent with credit repayments and overall, be mindful that you may be held accountable in the future for any financial decisions you make today.

Talk to us today at Yellow Brick Road, and we’ll help you understand how your credit score might be affecting your suitability to access a home loan.

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