Credit report 101: A beginner's guide

Have you ever wondered how lenders decide whether to grant you that desired home loan? Your credit report holds significant importance in their decision-making process. Think of it as your financial report card, showcasing your payment habits and borrowing history.

Discover what you need to know about credit reports and why your credit score plays a vital role in your journey toward homeownership.

What is a credit report and why is it important?

A credit report summarises your credit behaviour and financial profile. It includes your credit score, credit products, repayment history, personal information, defaults, credit applications, bankruptcy records, and credit report requests.

Lenders use this report, based on factors like credit applications, debt, repayment history, and bankruptcies, to assess your creditworthiness. A higher credit score shows the lender that you are a less risky borrower. This, in turn, improves your chances of getting approved for a loan and could even result in a better interest rate.

In some instances, a credit report can contain a false or incorrect entry. That’s why it’s so important to check yours regularly.

Can you get a mortgage with a poor credit report?

Despite having a poor credit report, obtaining a mortgage is not impossible. Here are some steps you can take:

• Verify your credit history: Ensure your credit score’s accuracy by checking for any errors or signs of fraud/identity theft.
• Consult a mortgage manager: FinancePath can help you explore loan options tailored to your needs and guide you through the application process.
• Consider a specialist home loan: Specialist home loans cater to borrowers with poor credit scores and consider the individual circumstances that may have affected your ability to repay in the past. The interest rate and fees applied to these types of loans can be higher than a traditional home loan as lenders may view you as being a borrower with higher risk. It might be wise to improve your credit score before borrowing to access more competitive loan options.

Tips to improve your credit score

To secure a favorable home loan, improving your credit score is crucial. Here are some key tips:

1. Manage credit card balances: Keep balances low and within the credit limit. Pay off balances in full or more than the minimum payment.
2. Use credit responsibly: Avoid maxing out cards, make timely payments, and don’t take on excessive debt.
3. Limit new credit applications: Apply only when necessary to avoid numerous hard inquiries.
4. Review your credit report: Regularly review for changes or errors, promptly reporting discrepancies.
5. Pay your utility bills on time: Late payments can harm your credit score. You can automate payments to ensure timely transactions. It showcases responsibility and avoids late fees.

By following these tips and maintaining responsible credit management, you’ll improve your credit score and enhance your chances of securing a first home loan.

Your next steps?

If you’re considering a home loan but need to improve your credit first, call the FinancePath team today on 1300 780 440 to talk through the loan options that may suit your needs.