How a good credit record can positively impact your home loan approval
As a first-time buyer if you’ve been diligent about paying off your retail accounts and study loan, you have a better chance of having your home loan approved.
A good credit record is essential when banks look at the financial history of a client. This is because when banks look at a potential home buyer’s profile, they check their credit history and risk profile to be certain that they can afford the monthly repayments and that they have a record of paying back credit responsibly so that the banks’ investment carries the minimum risk.
While not an easy task, paying off as much as you can of your loans or credit accounts, puts you in a very good place financially and mentally when you have to go through the rigours of a credit check when you are buying your first home.
What hinders your credit score?
Even if you are able to afford it, not paying accounts on time reflects badly on your credit score. A few late payments could spell disaster if not managed correctly.
Few consumers realise that a default on any debt repayment may be reflected in one’s credit rating. Settling an outstanding debt does not automatically guarantee a favourable credit score as the repayment history of debt remains on the consumer’s credit record for two years.
One of the golden rules about credit is that you can’t get it until you’ve had it. This means that while it may seem financially responsible not to get into debt, the banks have no other way of assessing what you will do with credit. So proving one’s future creditworthiness by having some existing debt is useful; however, paying these debts off responsibly, on time, and at the correct monthly instalment, or even a little more, is the most important factor.
Ideally, consumers should educate themselves about their credit rating and apply for their free report annually.
Remember that even once your bond has been approved you will need to maintain your credit rating. If your credit rating goes bad before a transfer takes place, the bank has the right to withdraw their offer of home loan finance.
Pro-tip: Get pre-qualified to assess what type of bond you will be able to qualify for, this will not only help you know what type of price range you could be looking at but it will also show how much your bond repayments will be. Open a savings account and start paying the bond repayments into the account as soon as you can. This way you can set up a budget, with that amount already allocated and you will get used to living without it long before you buy your home. You can use the money as part of your deposit or even as an emergency fund.
It sounds boring, but the discipline will ease your mind and a clean credit rating when you take the first steps on your property journey.
Need a home loan?
MyProperty Home Loans has a team of experts that can assist you in obtaining bond prequalification and the best home loan for your pocket.
