A guide to your credit profile

Mortgage lenders will require a prospective borrower to fulfil a selection criteria before they will approve a home loan. Before deciding to apply for a home loan, there are a number of things you can prepare before your meeting with your mortgage broker so they can help you through each stage of the application process.

Know your finances

Know where you are now with your personal finances and have a plan for the future. Be able to show your monthly income and expenses, your savings and investments, any personal loans and leases, what you have in the bank and on the credit card.

Tips:
• Get help from an Accountant or Financial Planner

• Use one of the inexpensive personal finance software packages available eg MYOB

• Prepare a budget

Think like a lender

Put yourself in a mortgage lender's shoes and think about what information they will be asking you, what evidence you will need to provide, what qualities they will be seeking, and what additional information you can provide to support your loan application.

Tips:

• Do some research - talk to people you know who have applied for a loan and ask them about their experience, grab a book on mortgages or use the internet. We recommend that you speak to a mortgage broker who has a wealth of information and will be able to answer any questions you may have

• Get hold of a home loan application form or a mortgage document check list and familiarize yourself with what information you will need to provide

• Talk to a mortgage broker - mortgage brokers make applications to mortgage lenders constantly and will work for you to make the home loan application process as easy and stress free as possible

Review your credit reference

Everyone in Australia who has previously had credit usually has a credit reference. This is held by a company called Baycorp Advantage. It is a record of your credit history, going back five years, detailing any loan enquiries or applications you have made, if there has been a default on a credit card or loan, a bankruptcy, even if you have an outstanding bill. You can purchase a copy of your credit reference from www.mycreditfile.com.au.

Mortgage lenders will look at your credit reference in the loan application process and a negative reference will affect a person's ability to borrow money.

Tips:

• Be honest and upfront with your mortgage broker. It is best they find out from you, not your credit reference, if there are any problems with your credit history

• If there has been a problem, explain why it occurred and how you rectified it

• Do not make too may applications for finance. Each one shows up on your credit report and multiple enquiries can be equated to a problem

• Do not have any arrears on bills, credit cards or store cards

• If you believe there to be any discrepancies or mistakes on your credit reference you are able to challenge them.

Non-conforming mortgage lenders will consider applications from people with more serious credit issues. However, they will still expect the borrower to explain the problems that occurred and the steps taken, or are being taken to correct them.

Reduce the plastic

When applying for a home loan, mortgage lenders will want to know how many credit or store cards you currently have and what the limits are on each card – what you have the potential to spend, not what you currently owe or how good you have been at repayments.

Tips

• Eliminate any excess credit or store cards you have

• Reduce the limits on the credit and store cards you use

Save, Save, Save

By demonstrating a good and constant savings record, then you show the lender you can manage a mortgage. Generally lenders want to see a minimum of 5% saved regularly over six moth or more.

Tips

• By being able to put down a 20% deposit on the property, the borrower avoids the lender having to take out Lenders Mortgage Insurance (LMI). LMI criteria is more stringent and less flexible and the insurance company is generally not as receptive as lenders when it comes to credit problems.

If you would like more information on on how you can maintain or repair your credit profile, speak to one of the mortgage brokers at Intellichoice on 1300 55 10 45, who will be more than happy to help you with some strategies or tips.