Home LoanBoosting Credit Score for a Home Loan in Sydney – How Do You Do It?

July 8, 2024

Planning to buy a house in Sydney? The initial step could be applying for a mortgage. However, in such a competitive market as this, getting a home loan is always tough. More so if you are financially unprepared. Your credit score is undoubtedly one of the critical components that you cannot overlook. Why is that so? With a high credit score, lenders can tell that you are creditworthy. The fact that you have borrowed before makes you likely to get your loan approved, and probably at a lower interest rate too.

This guide shows how your score can be improved before applying for a home loan in Sydney.
But first…

Credit Score – What Exactly is It?

Before we dive into the tips to improve the scores, it’s vital for you to first understand what a credit score really is. Your credit score is basically your creditworthiness put into a numeric value, typically on a scale of 0 to 1200. Credit reporting agencies in Australia – Equifax, Experian, and Illion – will put this report together from the information supplied by the lender and other credit providers on your history. That report outlines the details of your entire credit history, including:

  • Payment History: This is the single most influential factor that will affect your score. A long payment history with credit cards, loans, and other debts settled in good timing will translate to a very positive responsible financial behaviour.
  • Credit Use: This means the proportion of how much you use your credit card in relation to the overall credit limit available at your disposal. The best practice one may follow is to maintain a credit utilisation percentage below 30%.
  • Number of Inquiries: All of your loan and credit card applications are documented in your report. It depends on the case, as one inquiry will not make that much of a difference, but several ones in a short period carry a lot of risks.
  • Credit Mix: A mix of various credit products in one’s credit history usually includes credit cards, personal loans, and a mortgage—if applicable—and tends to positively impact the score.

How to Build a Good Credit Score: Highly Actionable Strategies

Now that you know the ingredients in a healthy credit score, let’s explore actionable ways to turn yours into a great one. Remember: It takes practice and persistence to build a good credit score, but the payoffs can be large in terms of competitively priced lending options.

1. Master Your Payments:

  • Master the art of on-time payments: This is a golden rule when trying to improve your credit score. One of the major red flags that harm your score is missed or late payments, and it stands on your report for years. Make sure to automate payment for every bill you have, be it a credit card, phone plan, utility, and so on. You may find it convenient to use budgeting apps or just set up their due dates on your calendar in order not to miss any. The bottom line here is, never be late!
  • Start with paying off high-interest debt: Credit card balances and such kinds of high-interest loans are very harmful for credit utilisation ratio. Because of that, a payment strategy for those loans should be made. There are several methods of doing that—approaches such as the snowball method, where you try to pay the smallest debts off so that you get motivated, or the avalanche method, where you focus on the debts which have the highest interest rate so that you can be able to save in the long run.

2. Be a Pro at Managing Your Credit Utilisation:

  • Watch credit card balances keenly: Regularly check on your statements and avoid going over 30% of your available limit. This is a sweet spot that demonstrates to the lenders that you are a good risk. Establish alerts that will warn you the moment you are near this very threshold.
  • Pay off what you owe: The more you pay off your debt, the lower your overall credit utilisation ratio becomes. This translates to a significant boost in your score. Look for ways you can free up extra money to throw against debt—like a side hustle, cutting extraneous spending, or calling up your credit card companies to see if they’d be willing to lower your interest rates.

3. Limit Credit Inquiries:

  • Shop around with “Soft Inquiries”: When comparing loan options, many lenders provide “soft inquiries” regarding loan options. These will not reflect on your credit report, so you can compare interest rates and the terms of the loans without enduring a penalty.
  • Space Out Loan Applications: Filing many credit card or loan applications within a short time period creates a batch of “hard inquiries” which can depreciate your credit score. Lenders, in this case, can consider financial stress as an indicator of distress. Space out loan applications sensibly, where intervals are left between each.

4. Make Sure to Have a Healthy Credit Mix:

  • Consider a Credit Card with Low Limit—Use It Wisely: The use of credit cards in minimally acceptable modes can actually prove helpful to a flagging credit rating. Apply for a low-limit credit card and make small, regular payments with it that can be paid off readily upon receiving the bill each month. This demonstrates your ability to use credit prudently. Yet, it must be noted that the point of the exercise is to avoid having the expenditure accumulate in the credit account, so you don’t accumulate a balance on the card.
  • Review Unused Store Cards: At times, having store cards that are rarely used can work against you in terms of your score, especially when the credit limit on the card is low. Try closing them if they aren’t giving you any value and you don’t see yourself using them ever. But closing the store card could hurt your average age of accounts on your credit report if it reveals a very long history of on-time payments—which can also factor into your score. Research the matter at hand, and weigh the pros and cons before you decide to close out any accounts.

5. Check Your Credit Report Regularly:

  • Get Your Free Credit Reports Annually: You can receive a free copy of your credit report from each credit reference agency once a year. Review your reports and ensure there are no errors of any form. These could include payments that have been made and marked as missed by your credit reference, credit limits that have been quoted wrong or cases of ID theft.
  • Dispute any Inaccuracies Immediately: if there is something on your credit report that you believe is incorrect, then do not hesitate to take up the credit report dispute with the particular bureau. This procedure may take some time but the changes can revert your credit score for better.

By following these strategies and remaining disciplined with your finances, you’ll be well on your way to building a credit score that will impress Sydney lenders and unlock the door to your dream home. Remember, consistency is key!

The Power of Professional Help: Mortgage Brokers

Competitive loans require a lot of work and a great deal of investigation relative to the complicated situation in the Sydney property market. In connection with this, mortgage brokers are very important. They deal with a panel of lenders to source the best loan in the market based on every individual’s needs.
A good mortgage broker will:

  • Evaluate your financial position, as well as your credit score.
  • Recommend home loan products that fit your requirements and your pocket.
  • Assist you in the process of application for a loan.
  • Negotiate interest rates for you.

AFMS Group: Your Partner for Home Loans in Sydney

At AFMS Group, our award-winning mortgage brokers are passionate about helping as many Australians get into their dream home. We know how important strong credit can be in securing competitive home loans in Sydney.

Our brokers can:

  • Review your credit report and provide personal strategies to improve your score.
  • Walk you through how to get pre-approved for a home loan properly.
  • We connect you with the most suitable home loan products available from a wide range of lenders.

Call AFMS Group today and let us help you unlock the door with a consultation.