Have you ever wondered what information is found on your credit report, and how your credit score is rated? The same question often pops up in the mind of many, especially when planning to purchase a new home, as a “poor credit score” might stand in the way of such plans.
However most Australians will be pleased to know that there ability to purchase a home with “bad credit”, may not be entirely hindered, as there are still various options available, and understanding what is on your credit file will also help you determine which options to go for (based on your needs).
Credit Scores
There are three main credit reporting bodies in Australia (Equifax, Illion, and Experion) that hold your credit report, and these agencies gather data about your credit which helps them generate a “credit score” based on the information attained.
Although scores can differ (based on different agencies), a bad score will generally fall in a range of 400 – 500, suggesting that the borrower may be more likely to default or miss payments.
Thus, making it hard for the borrower (with such a score) to obtain a traditional loan.
Most borrowers will be pleased to know that their ability to purchase a home with bad credit, may not be entirely hindered!
Because in such a situation, it all comes down to understanding what options are available.
Bad Credit Loans
A bad credit loan just might be the answer for borrowers, and first home buyers that have poor credit scores. Such loans don’t differ too much from conventional home loans, in the sense that you will still be required to make regular payments on the loan’s principal and interest after the loan is obtained, and that a down payment is needed in order to get the loan.
Differences can be found in the fact low credit scores often hint that the borrower may have had prior financial woes, which could have been the result of numerous things, such as; a credit default, untimely payments, or even bankruptcy.
Although low credit scores may possibly raise some red flags when considering a home loan, rest assured that all is not lost.
You can hold on to your dream of homeownership, as lenders still want to help you achieve it.
When applying for a bad credit loan, it is important to be aware of the following (amongst other factors):
Higher interest rates and fees:
Borrowers with low credit scores, may also be subject to higher fees and larger interest rates.
Lower LVR (loan-to-value ratio)
Typically 20% is needed when making a deposit on a home loan. A bad credit loan will often require the borrower to pay larger sum, when making a deposit.
It is important to be aware of what banks and other lenders will consider.
Considering a Bad Credit Loan?
Data given by credit reporting agencies, suggest that average Australian consumers normally have fairly good credit scores (as per Equifax data 2018) with the ratio of “good scores” being led by the Silent and Baby Boomer generation. Whereas Millennial consumers sit below the average score, leaving Generation X in the middle of this ratio.
This information would suggest that Millennials, are more likely to be in need of bad credit loans.
Regardless of which generation you fit into, it is important that you become credit savvy, and knowledgeable of your current credit score, when making plans towards purchasing your first home.
Obtaining a Bad Credit Loan
In order to increase one’s chances in successfully obtaining a bad credit loan, it is imperative that borrowers employ the services of a knowledgeable financial team,
If you are planning to obtain a bad credit loan, rest assured that our mortgage brokers at Abacus Home Loans, will strive to find a mortgage that matches your circumstances and financial interests.
Contact Abacus today for more information.
