There may be a higher price to pay for all the coffees you’ve bought this week or the takeout meals you ordered through Ubereats.
You better watch out as the banks have a close eye on your daily spending habits if you’re a potential loan customer – purchases made through Afterpay, food deliveries, daily splurges and entertainment are all being put under the microscope.
In short, your credit score is being put to the test as it reflects your reliability to make repayments to your bank/lender. It is calculated from your personal and financial information in your credit report. Having a higher score will maximise your chances for a better loan.
How Your Credit Score Is Calculated?
Your overall credit score is calculated based on what’s in your credit report. For example, this includes
- Repayment history
- Overdue accounts
- Details of the credit or loan products you’ve held in the past
- Number of credit applications you’ve made
Generally, your credit score will be scored between zero and ether 1,000 or 1,200 from the credit reporting agency.
The score reflects your risk factor to reflect how risky it is for a bank/lender to lend money out to you. A higher score means they will consider you to be less risky. Providing you with a better chance to obtain a higher loan.
So What Even Affects Your Credit Score?
There are numerous things that can affect your overall credit score whether it’s for the better or the worse. We have provided a short but affective infographic to give you a perspective of what changes your score.
5 Simple but Effective ways to Boost your Credit Score
- No more late repayments
The easiest way to improve your overall credit score is to ensure that you make your repayments on time and that there are no overdue payments. Any overdue payments will remain on your credit report and ultimately affect your score for the worse.
2. Addressing any mistakes in your credit report
It is a good idea to order a copy of your credit report for incorrect information. You would be surprised at what you might discover. The slightest correction can overall improve your credit rating and boost your chances at achieving a higher home loan.
Check for any incorrect personal information, repeated or inaccurate debt amounts, and any debts that were created in error. If any incorrect information is found, you should contact your lender directly to have them remove it from your credit report.
Example: If you’ve recently moved houses and forgot to change your billing address, you might have forgotten to pay for a specific bill, which in return affects your credit score
Also enquiring about your credit report will not negatively affect your score. Since it’s considered as a soft enquiry.
3. Limit your hard Inquiries
Your overall credit report will consist of either a hard or soft inquiry. Soft inquiries will not affect your overall credit score. These typically include: checking your own credit, providing a potential employer about your credit, checks done by financial institution and credit card companies checking your credit history.
However, for hard inquiries, they, unfortunately, have a negative effect on your credit score. Generally, they are applications for a new credit card, a mortgage, an auto loan or any form of new credit. Continuous hard inquiries will be viewed from a bank’s perspective that you’re facing financial difficulties and are therefore a bigger risk. Avoid applying for new credit if you want to improve your credit score.
4. Lowering the limits on your credit cards
If you’re someone with a high credit limit, it’s advised that you lower your limit. This will reduce the risk of racking up debt and show to your lenders that you taking steps to become more financially dependable. Having a low credit balance will look good on your credit report and is more favourable to lenders.
5. Mortgage Brokers are your next best friend
Some people believe that applying for multiple home loans is the best way to gain borrowing approval. In reality, too many credit enquiries in a short period will damage your credit score and lower your chances of getting approved for a loan.
To maximise your chances of obtaining a loan, it’s best to partner with an experienced mortgage broker in Australia who understands your needs and financial situation and who can match you to a credit policy.
At Abacus Finance, we understand how important mortgage approval is and the implications that rejection can have on you and your family. That’s why our skilled team of mortgage brokers is committed to acting in your best interests. We will find you the right home loan that suits your unique standards – fitting to your needs, your budget and overall long term financial goals. For a tailored assistance with a loan application, contact Abacus Finance today.