How your credit history affects your mortgage application

When assessing your mortgage application, lenders base their decisions about whether or not to approve your loan on many factors including:

  • your income including bonuses, allowances, rental income, etc.
  • your employment history
  • how many places you have lived in the last few years
  • your savings history
  • your loan repayment history
  • your credit history and credit score

Today, we’ll explain what lenders can see about your credit history and how to make sure your credit history isn’t getting in the way of getting that property of your dreams.

What is a credit report and a credit score?

A credit report/ credit file (or credit history report) provides a snapshot of your borrowing history.  Every time you apply for a credit card, loan or mortgage payment, information about these repayments is stored as part of your credit history – even if the loan or credit card is not approved.

The information in your credit report is used to work out your credit score (or credit rating).  Your credit score is ranked anywhere from 0 to 1200 – with 0 being the worst, and 1200 being excellent.  This score essentially ranks your credit history against other Australians.

How do lenders access your credit history?

The two main reporting agencies that lenders in Australia use for credit reporting services are Veda and Dun Bradstreet (DnB).  These agencies collect data from many sources including all types of lenders, telco’s (phone contracts are a form of credit) and debt collection services.

A credit report can only be accessed with your permission through signing a privacy request form with a lender.  Alternatively, you can contact a credit reporting agency directly to obtain the report.

What lenders can see about your financial history

  • How many applications for credit you have made
  • How much credit you have applied for
  • Who you applied for finance with
  • When you applied for finance
  • Information you declared at the time of making a credit application e.g. your employment details, income and where you live
  • Any bad credit notes or defaults
  • Your credit score

How to make sure your credit history is clean

At Mortgage Corp, we always recommend clients subscribe to a credit file or identity monitoring service such as Veda Access or Identity Watch.  This costs around $100 per year but gives you peace of mind that your credit history isn’t reflecting something that it shouldn’t.

On the off-chance you are notified of a change being made without your knowledge, you can promptly take action to fix the mistake rather than being surprised when your mortgage application is rejected!

Also, always be careful of companies offering FREE credit checks or credit scores as you don’t know who you are giving your personal information to.  We would generally recommend dealing only with Veda and DnB to access your credit file.

It’s also important not to take a ‘scattergun’ approach when applying for loans as this can impact your chances of success.  For example, don’t go to three banks within three weeks and hope someone gives you a loan – all of your applications will be visible to each bank!

good mortgage broker will do the hard work first and single out the most suitable option before applying for finance, to maximise your chances of approval based on the correct info you provide at your appointment. 

Does having a bad credit rating mean you can’t get finance?

Answer: not all of the time!

We deal with lenders who specialise in this area, and whilst the rates and fees might be a little higher, this may be the best option for you.

There are a number of companies out there which offer services to clean up a bad credit file – BE VERY WARY OF THEM!  These companies will often charge excessive fees and not guarantee any results.  In many cases, it’s more worthwhile speaking to a good broker/lawyer first.

Your Credit file is essentially a snapshot of you and your position financially, therefore, protect it and get good advice from a reputable mortgage broker when applying for finance, this will save you any hassles and make the process smooth.

An experienced mortgage broker like Mortgage Corp can help guide you towards the next steps of either cleaning up your credit history or finding a suitable lender for your circumstances. But more importantly, they can help strategically structure your loan for long term investment success.

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