How building credit can help position you for a home loan

Mortgage brokers and lenders use your credit rating to determine if you’re a good loan candidate. A bad credit score – caused by missed payments or excessive debt – can hurt your chances of getting your first home loan, but no credit rating can be detrimental as well.

At Mortgage Choice, our brokers want to help you find the most suitable home loan and mortgage rate. Your credit score is a major factor in the loans you’ll qualify for, but don’t panic if you haven’t built any credit yet. You can grow your rating by always paying your bills on time and making affordable, timely purchases with the right card.

Apply wisely

Need a credit card but can’t get one because well, you’ve got no credit? Not only is this a tongue twister, but it’s also a frustrating predicament to find yourself in.

Not every credit card company will approve your application, so make sure you do your research and apply to banks that are known to offer credit to first timers. Every application you make is factored into your credit score, and too many failed applications can make you look high risk.

Consider a secured credit card

Consider getting a secured credit card. Secured cards require a deposit to be used as collateral if you find yourself unable to make payments.

Just like with any card, use only a small amount of your credit allowance each month and always pay it off. Consider using the card for your groceries and fuel costs each month – expenses you know you can afford. This isn’t a pre-paid debit card – the deposit won’t be used automatically if you come up short, so it’s your responsibility to always pay the bill.

Once you’ve used this secured account for an extended period of time, you’ll be able to close it, apply to get your deposit back, and apply for an unsecured card with a higher limit. If you can, it’s a good idea to get a card that reports to all major Australian credit bureaus.

Stay on top of it – check your score regularly

Your credit score won’t change overnight, but you can work on it over time. Don’t make the mistake of only checking your score when it’s time to apply for a home loan. Building or improving credit takes time.

There may also be errors affecting your score. If you did, in fact, pay that hospital bill five years ago, dispute it with the reporting agency and submit documentation supporting your claim.