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How to Prepare Your Credit History for Home Loan Approval

Credit History for Home Loan

Have you ever wondered how to prepare your credit history for home loan approval? In Australia, your credit rating is based on a few factors: Your debts, your proven ability to make repayments, your credit inquiries (applications you have made for loans or credit cards), and any negative events you may have recorded against your name, such as defaults or bankruptcy.

Here we work on a positive credit reporting system, so you do not necessarily need to have built a credit history through products like loans or credit cards to get a home loan. The more credit products you have applied for in the past, the more your ability to be approved for a loan could be negatively impacted.

If you are concerned about being approved for a home loan because you do not believe you have a credit history, here is how to prepare your credit history for home loan approval.

What is a positive credit reporting system?

Australia’s Comprehensive Credit Reporting system is a positive credit reporting mechanism that means credit bureaus are supplied with information about consumers and their repayment habits. The bureaus pass on this information – both positive and negative – so that lenders are well informed to approve or decline credit.

Positive information that is reported includes:

  • On-time bill repayments for the past year
  • Repeat good behavior (rather than focus on a one-off missed payment)
  • Detailed information, including the type of credit account, when it was opened, the current limit on the credit account, and the lender

How how to prepare you your credit history for home loan approval without using a credit card?

You don’t need a credit card or a personal loan to be able to build your credit history and improve your credit score. Paying utility bills on time is an excellent way to show a lender that you are a reliable borrower, so remember to pay gas and electricity in full and on time to help build your credit profile.

Your post-paid phone plan is another way to prove your reliability. If you use a prepaid phone plan it would be prudent to switch to a plan that issues a bill at the end of each period. Paying these bills on time will help demonstrate how responsible you are, but remember that failing to pay the bill will negatively affect your score, too.

If neither of these options is suitable, or you if want to give your credit history a real boost, there are low-interest, low-fee cards that have low balances available. If you think it would be manageable to pay off the balance each month you could consider applying for one of these types of cards to improve your rating.

What will negatively impact my credit history for home loan approval?

For consumers who do not have and have never had any credit products, bills should be paid before the due date to maintain a strong credit rating. Individuals who previously had a poor record of paying their bills on time can improve their rating by starting to pay within the billing period and ensuring they do not miss any due dates going forward.

Changes to financial hardship reporting that impact credit history for home loan approval

From 1 July 2022, financial hardship information will start to form part of the credit reporting system. This information is intended to help lenders gain a more detailed picture of a borrower’s repayment obligations and whether they have been meeting those obligations.

Ultimately, to be eligible for a home loan you can build your credit history through positive reports like paying regular bills on time. There is no need to apply for a smaller credit product such as a credit card or personal loan for the sole purpose of building credit unless you are certain it is the most advantageous financial decision for your situation.

credit history for home loan

For more information, talk to our experienced Mortgage Brokers today at (07) 4052 0700.

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By Lauren Eakins

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