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What can affect my credit rating

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If you are looking to take out a home loan in the near future, it might be time to start thinking about your credit history.

Whenever you apply for a loan, take out a mobile phone contract or select an electricity company, this information goes on your credit file and becomes part of your credit history.

When applying for a home loan, your credit report (amongst other things) is used by a lender to assess your ability to repay debt. So it is important to understand how it works and how it can affect your ability to borrow money.

Managing your credit history

If you agree to a credit arrangement, you enter into a formal contract and are held responsible for repaying the money that you owe. It’s essential to make your repayments on time, as missed payments or defaults will be recorded on your file. Defaults and missed payments can affect our credit score. A poor credit score may potentially limit your ability to get credit in the future. Before you apply for additional credit, try to take a moment to consider if you really need it and can afford it.

Checking your credit record

Reviewing your own credit report is a good way to manage your credit history. You can request a copy of your credit record through specific credit reporting bureaus or agencies. And the good news is that you are entitled to check your credit report for free, once a year.

You should check for any mistakes – from the simple, such as your name or date of birth – to the more detailed, such as a debt being listed twice or with an incorrect amount. You should also ensure that all the transactions have in fact been made by you. If you believe that you have been the victim of identity theft, you should contact the police immediately.

If there is an error, you can request to have it changed and incorrect listings should be changed for free. However, a credit report cannot be changed unless a listing is shown to be inaccurate or out of date. So if you do have any blemishes such as late payments or declined credit applications, it’s worth speaking with a financial adviser to examine your credit options, as you will be unable to change the report.

Some hints and tips

It is fine to start with a neutral credit file. Contrary to popular belief, you don’t need to “build” a credit history.

If you do have a less than perfect credit history, all is not lost. There are some steps you can take that might help:

  • Ensure you can demonstrate a savings history. Building a good deposit shows your lender that you are capable of committing to regular financial commitments.
  • Get rid of the credit card debt. It can slow down your ability to accumulate a large enough deposit, and it will also factor into a lender’s decision regarding your liability as borrower. Even if you haven’t used your credit card, or have a zero balance, the credit limit on the card will be considered a ‘possible future debt’ by a lender. This will be one of the factors in a lender’s decision regarding your liability as a borrower. It’s therefore a good idea to consider whether you can reduce credit card limits if you’re applying for a home loan or looking to take out a bigger mortgage.

Gateway can help when you’re ready to apply for a home loan

If you are all set to take that next step, Gateway’s lending specialists are ready to help. Contact us online today or alternatively call 1300 302 474. We can discuss your needs and requirements and confirm all the documents you will need to provide.

 

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