30 Oct, 2019
Want to buy a house one day but unsure of what a credit score is and what it means?
The lingo surrounding buying a house can be confusing at first. Here’s everything you need to know about credit scores and how they can impact you buying a house.
Your credit rating is important as it alters how much a financial institution is willing to offer you; this becomes your credit limit. It also affects other terms of the agreement, including the interest rate. If you appear trustworthy the lender will be more relaxed in what they offer you.
Credit score bands are usually measured between 1-1,000 or 1-2,000. Equifax is Australia’s frontrunner in credit reporting. It has credit information for more than 18 million Australians and is used by a majority of lenders and credit providers.
Here are their credit score bands to give you an idea of the scale:
But different banks can have their own scoring systems. Commonwealth Bank, for example, has a five-tier credit scoring system:
Other major banks such as NAB or Westpac have their own scoring systems, meaning there is no one magic number which secures a home loan.
As a result, it’s quite possible that you could pass with one lender but fail with another.
Yes – it is possible to get a loan with a bad credit score, but this will come at a cost. The first thing to note is that the big banks are unlikely to consider your application – even if your blip was for good reason. With a specialist lender or a non-conforming lender, you can probably expect a higher interest rate for the sum of money you secure. But, if you manage this loan well for a few years, you can refinance and move over to a big bank.
As mentioned earlier, there is no number or score which means you pass a loan assessment. Instead, it’s based on how much risk a lender is willing to accept.
Those after a home loan who have never had a credit facility like a credit card, car loan or even a mobile phone contract are “untested” in the eye of lenders.
Some lenders may ask you to first prove yourself with a small credit card before jumping into the deep end. Once you have a six-month history, borrowing becomes easier with most lenders.
Words by Michelle Elias