Upgrading your home or purchasing an investment property? Income and debt levels are the major factors in determining borrowing capacity, but credit scores are the key to accessing favourable terms on your loan.
Why your Credit Score matters
Income helps a lender understand the repayment schedule you can afford; credit score determines whether a loan will be issued in the first place. It also influences the total value you’re able to borrow, as well as the loan terms.
What impacts your Credit Score
Contrary to popular belief, having a higher level of wealth and assets does not necessarily improve a credit score. The factors that matter are:
- Length of credit history.
- Personal details, including age, address and the length of time in a job.
- The number of credit requests and applications that you have made over time.
- The dollar limit of existing loans and credit cards.
- Credit repayment history, including credit cards, loans and bills. According to Experian, a single missed credit card repayment can decrease your credit score by up to 22%.
- Negative credit information including bankruptcies, defaults and court rulings.
How to Improve Your Credit Score
The lower your credit score, the higher the risk you are to the lender. So how can you improve your score and leverage it for better deals on credit?
- Reduce credit card limits (this also improves borrowing capacity).
- Minimise applications for credit cards and loans. Specifically, reducing the number of credit applications that you make within a short space of time.
- Ensure bills and credit card repayments are made by the due date. Many providers have automatic payment options requiring minimal effort to set up.
- Review personal credit report and ensure all details are correct.
Alka Kalasabail, Senior Adviser
This information is general advice only and does not take into account your personal circumstances, goals and objectives. Therefore, you should consider its appropriateness for your circumstances before acting on this information.