GUIDE TO YOUR CREDIT PROFILE
Lenders in the mortgage and finance industry require a prospective borrower to fulfill their selection criteria before they will approve a home loan. Generally speaking traditional lenders such as banks tend to have more stringent criteria, the non-conforming lenders are a lot more flexible, and mortgage managers are somewhere in between.
Before deciding to apply for a home loan, there are a number of things you may do in preparation for your meeting with your mortgage broker or lender to help them, and you through each stage of the application process.
KNOW YOUR FINANCES
Know your personal finances and have a plan for the future. Be able to show your monthly income and expenses, what savings and investments you have, any personal loans and leases, what’s in the bank, on the credit card etc.
THINK LIKE A LENDER
Put yourself in a lender’s shoes and think about what information they’ll be asking you, what evidence you will need to provide, what qualities they’ll be seeking, and what additional information you can provide to support your loan application.
Knowing the five C’s of lending can help you with this:
- Character: stability, credit history, intention to repay the debt
- Capacity: can the borrower repay the loan?
- Capital: what’s the financial position of the borrower?
- Collateral: what security is offered?
- Commonsense: will the application and use of funds make sense to the lender?
Review Your Credit Reference
Everyone in Australia who has previously had credit usually has a credit reference which is held, for example, by a company called Baycorp Advantage. It’s a record of your credit history, going back five years, detailing any loan enquiries or applications you’ve made, if there’s been a default on a credit card or loan, a bankruptcy, even if you have an outstanding bill etc. Lenders will look at your credit reference in the loan application process and a negative reference will affect a person’s ability to borrow money.
You can obtain a copy of your credit reference from Baycorp Advantage.
Some non-conforming lenders will consider applications from people with more serious credit issues. However, they will still expect the borrower to explain the problems that occurred and the steps taken, or being taken to correct them.
Reduce the Plastic
When applying for a loan, lenders will want to know how many credit or store cards you currently have and what the limits are on each card – what you have the potential to spend, not what you currently owe or how good you have been at repayments.
Save, Save, Save
By demonstrating a good and constant savings record, you are indicating to the lender you can manage a mortgage. Generally lenders want to see a minimum of 5% saved regularly over 3-6 months or more.