Tips for improving your Credit Score before getting a Home Loan

How to Improve Your Credit Score

Improving your credit score is essential for obtaining favorable loan terms and financial opportunities. While there are no guarantees that these strategies will immediately boost your credit score, they can help you establish habits that will strengthen your overall creditworthiness. Here are some quick tips to consider:

Timely Repayment History: Lenders, including prime and non-conforming lenders, assess your ability to repay loans on time. They review your repayment history of various bills, such as rent, credit cards, medical and utility bills, and other services that may involve collection agencies for delinquent accounts. Ensure that you consistently pay these bills on time to demonstrate your responsible financial behavior.

Check Your Credit Report: Regularly review your credit report to identify any defaults or negative repayment history recorded. If you find inaccuracies, take the necessary steps to correct them before a lender or credit advisor accesses your report. You can also verify your credit score with a credit reporting agency. Note that recent legislation allows lenders to access your credit reports and view the past 24 months of your repayment history.

Maintain Available Credit: Prior to applying for a home loan, avoid opening new credit cards or lines of credit. Lenders perceive sudden loans for cars, electronics, furniture, and other expenses as risky behavior. Instead, focus on paying off existing balances, as reducing your debt-to-credit ratio can improve your creditworthiness. For example, having $4,000 in debt with $20,000 available credit looks better than having $500 in debt with $800 available credit.

Establish a Savings History: If you need to demonstrate “Genuine Savings” for mortgages above 85% with prime lenders, your savings should amount to approximately 5% of the property’s purchase price. Saving a larger deposit can also help you avoid or reduce the cost of “Lenders Mortgage Insurance” (LMI) and potentially qualify for a more competitive interest rate from the lender or credit provider.

Avoid Applying with Multiple Lenders: Submitting home loan applications to multiple lenders or credit providers simultaneously can negatively impact your credit report. These applications will be recorded and may raise concerns about your creditworthiness. Instead, research and choose a suitable lender or credit provider before submitting your application.

Employment Stability: Demonstrating stable employment is crucial for lenders and credit providers. If you have held the same job for more than two years, it is considered favorable. However, if you recently changed jobs, you can still satisfy the requirements if you have been in a similar role or within the same industry. Strive to establish a stable employment history before applying for a home loan to assure lenders of your ability to make regular repayments.

Disclose All Information: Always be transparent with your lender or broker and disclose all relevant information. Non-disclosure of pertinent details may lead to the rejection of your home loan application. Honesty and open communication are key to building trust and ensuring a smooth loan application process.

Seek Expert Advice: While these tips can assist in improving your credit score, it is advisable to consult a professionally qualified and expert mortgage broker. They can provide personalized guidance and help you create a tailored credit improvement plan based on your specific financial circumstances.

By following these recommendations and working closely with a knowledgeable professional, you can take significant steps towards improving your credit score and achieving your financial goals.