Does your credit score affect mortgage rates? Yes.
However, does a higher credit score give you better rates? No!
If one borrower has a good Equifax credit score of 700 and another borrower has an excellent Equifax credit score of 900, both of them will likely qualify with the same lenders who offer the same interest rates – everything else being equal.
So a higher credit score does not necessarily mean you get a lower interest rate on your home loan.
Up to a certain point, your credit score matters. However, once you cross that threshold, it doesn’t matter as much.
What credit score do I need for a home loan in Australia?
In Australia, an Equifax credit score between 622 to 725 is considered good.
A very good Equifax score ranges between 726 to 832, and an excellent credit score ranges between 833 to 1200.
Most lenders will accept a good credit score when you’re applying for a home loan.
However, please note that lenders don’t only use your credit score to assess your risk profile. They also use other factors to determine the riskiness of lending to a borrower.
What if my credit score is low?
Since the Big Four banks of Australia use an automated credit scoring system, if you have a low credit score on your home loan application, you may be automatically declined.
Since your credit score is an indication of your character as a borrower, the lender will check your credit file for red flags and look through your credit history.
There are specialist lenders who can help borrowers with low credit score, but these come at higher interest rates since you’re considered a risky borrower.
10 Tips To Improve Your Credit Score
Firstly, you have to know your credit score to see what improvements can be made.
You can get a free copy of your credit file from any of the major credit reporting bureaus in Australia.
If your credit score needs improvement, here are 10 tips to follow:
- Pay your bills and financial commitments on time to avoid getting a negative listing on your credit file. If not, it will show up as default and lower your credit score.
- If you are facing financial hardship and cannot keep up with repayments, consider talking to your lender for a lenient repayment schedule.
- Avoid getting too many enquiries on your credit file. If an application for a home loan is rejected, do not apply with another lender straight away. Take the time to pay off any existing debts and commitments so you can improve your credit score.
- Make sure all the information on your credit report is correct and remove any incorrect listings.
- Try to lower the balance of your credit card.
- Do not apply for credit cards or other expenditure inducing activities.
- Discipline yourself and set a payment schedule for all current debts.
- Set a budget, taking into consideration your savings and expenses.
- Set up reminders for when payments are due.
- Stay in your current address and job for as long as possible.
Do you have bad credit?
We have lenders on our panel that offer bad credit home loans.
We will work with you to find a lender that best suits your needs, according to your situation.
Call us on 1300 889 743 or fill in our free assessment form.