Credit profile, score, evaluation: if you are thinking of getting a mortgage loan, these are important terms that you will have to learn more about.
What is a credit score?
All active credit persons have a profile. This is a summary of your history with each credit provider you have dealt with, and serves as a record of how well you have managed your accounts, such as loan repayments, past due debts, the frequency with which you applied for credit and the types of loans or credits you have requested, and the frequency of your requests.
How does it work?
Credit report providers summarize their profile on something called a credit score. The score is between 0 and 1200, where the higher the number, the more likely you can afford a loan. Lenders examine your credit profile and your score to know your credit history and behavior, and evaluate whether you can take a new loan. This information assures lenders that you are good at paying the money to those who lent you, that is, you are a “low risk” customer.
A good score not only makes you more likely to get approval for your mortgage loan application, it also means you will qualify for a better interest rate. Of course, the other side of the coin is that if you have a low score, you will be less likely to qualify for new loans. This protects the lender and those with low scores from obtaining additional loans, extending too much and getting more debt. In summary, you must have a good credit rating to approve your mortgage loan application.
Therefore, it is a good idea to first find out what your credit score is before applying for a loan and give yourself time to improve it before approaching a lender.
How to check your score?
A great place to start your research is the ASIC MoneySmart site. You can get a free credit score evaluation from a number of online providers, which are listed on the MoneySmart site.
How to improve your score?
Improving your credit score begins with observing your current financial situation and ways to improve it. Getting a good credit standing before applying for a loan can help increase the likelihood that you will be approved.
You can improve your score by:
lowering the limits of your credit card
Consolidation of multiple personal loans and / or credit cards.
limiting your credit inquiries
paying your rent and bills on time
paying your mortgage and other loans on time
paying your credit card in full every month
To avoid surprises, be prepared and know your credit score.