For First Time Buyers: Why A Good Credit Score Is Important If You Want A Loan for Buying A House
Buying and owning a house is a dream for many. The process, however, is not straightforward for people who intend to buy the house with bank loans. There is the prospect of a lengthy application for a loan and there are also factors like collateral and credit score that affect the processing of a loan. Credit score is one of the factors that may deny you a loan or mortgage for buying your dream home; that is, if you have a bad credit score. If, however, you have a good credit score, your chances of getting a loan are good.
What Is A Credit Score?
A credit score is a three digit number generated from your credit report and is used mainly by lenders to ascertain your worthiness of different things including mortgage, loan and credit cards. On top of determining whether you are a viable candidate for a loan or mortgage, credit score also determines the interest rates that you will be afforded during the charges. A credit report is a report that accumulates any information that helps a lender in deciding if you are a strong candidate for a loan. The information includes how you pay your bills and debts, the amount of credit you have, and the amount of debts you have in a month. These reports are normally calculated and kept by credit bureaus like Veda Group, which is also the biggest credit bureau in Australia.
Credit bureaus collect your financial information from lenders, merchants, landlords and other people or institutions you may have dealt with from a financial perspective. Then based on the information they receive, which may be positive or negative, they compute your score.
A score of 720 or higher is usually considered as a good score even though each bank may have a different setting of a good score. A score below that may automatically rule you out of a mortgage or loan application.
How Do You Improve A Bad Credit Score?
If buying a house is still your dream, and borrowing from financial institutions is still your preferred way of financing for the house, you better start working on your credit score if you have a bad score. One method that will make your credit score shoot up is to pay your bills on time because your payment history accounts for 35% of your score. And if you are worried that it may take a long time to improve the score, you should take heart from the fact that your recent history carries more weight than the past. If, for instance, you are late on payments this year and you are intending to borrow some money next year, your failure to pay your debts on time this year will hurt your score more than failures from the previous years.
On top of timely bill payments, you can also improve your score by paying down your debts. The size of debt you currently have accounts for 30% on your score ratings.
You can also work with a real estate professional to find a home that fits into your budget.