Improve Your Credit Before Getting a Mortgage

Improve Your CreditOne of the best ways to improve your chances of getting a home loan is to improve your credit score. It is because better credit scores may give you access to better interest rates and more beneficial home loan products.

Here is a list of some quick tips to help you get the best possible credit score. While there is no guarantee that all of these options will immediately boost your credit score, they may help you establish habits that will strengthen your credit score.

Show you can pay your bills on time, every time

Lenders/credit providers will want to see that you can repay a home loan on time. So, here is a list of bills that you should pay on time, every time:

>> Your credit cards;

>> Your rent;

>> Your medical and utility bills; and

>> Any other service that may use a collection agency for the recovery of delinquent accounts.

If you miss a payment date by a few days, call the service provider immediately to make the payment, and don’t be afraid to ask the provider for a one-time forgiveness.

Check your Credit Rating

You should regularly check your credit report with a credit reporting agency (such as Veda Advantage and Dunn and Bradstreet), as it will:

>> Give you an idea if you have any defaults or negative repayments history recorded in your report;

>> Give you time to get the credit report corrected before a lender/credit adviser accesses your report; and

>> Enable you to verify your credit score with a credit reporting agency.

Note: You should be aware that due to the changes in the Privacy Act in March 2014, lenders/credit providers have the ability to access your credit reports and can see the past 24 months of your repayment history.

Maintain your Available Credit

Before applying for a home loan don’t open any other credit cards or lines of credit. It is because lenders/credit providers will see you as being a risk if you suddenly take out loans for cars, electronics, furniture, etc.

Also, refrain from closing your credit cards or other lines of credit. Instead, consider paying off your balances as a lower debt will improve your debt-to-credit ratio.

This is best illustrated by the following example:

Having a total debt of $4,000 with a $20,000 available credit will look better than having just $500 in debt with $800 available credit.

Establish a Savings History

If you are borrowing more than 80 percent of the purchase price of the property, you will be required to meet the “genuine savings” requirements of lenders/credit providers. Your savings will need to add up to around 5 percent of the purchase price of the property.

For example, on a purchase price of $700,000, you will need to have savings that add up to $35,000.

Note: Saving a larger deposit should help to reduce or avoid paying “Lenders Mortgage Insurance” (LMI) and you may even be offered a more competitive interest rate by the lender/credit provider.

Avoid applying with too many Lenders/Credit Providers

Avoid submitting your home loan applications to several different lenders/credit providers at once. It is because these loan applications will appear on your credit report. You should only submit your home loan application:

>> After you have compared lenders/credit providers; and

>> After you have decided to go with a particular lender/credit provider.

Your Employment Stability

If you have had the same job for several years, then this is a big tick. So, prior to applying for a home loan, Try to establish a stable employment history as it will enable you to make regular loan repayments.

If you have changed your job recently, do not worry. You may satisfy the requirements of lenders/credit providers, if:

>> You have been in a similar role; and

>> You have been in the same industry.

Disclose all Information

Lenders/ credit providers may think that you have other debts that have not been disclosed. So, always be upfront and disclose all information as non-disclosure of relevant information may result in your home loan application being declined.

Seek Expert and Professional Advice

All these tips should help you to improve your credit score. However, you should speak to a professionally qualified and expert finance broker who can help you to create a personalised credit improvement plan. Establishing this relationship with a finance broker will help you to determine which potential lender/credit provider best meets your needs.

All the Best!

Understanding the Importance of CIBIL Rating & Ways to Improve It

CIBIL RatingA credit rating is nothing but a number, which is computed by an approved credit rating agency. These days the masses are more conscious than that in the past. It is because of this risen awareness that jargon like credit rating and CIBIL score are heard often across almost every tier of the society. The rating or the number actually provides a hint of an individual’s credit worthiness. This score proves to be a crucial tool for conventional lending agencies while processing or approving a loan application of an individual. Before borrowing the money, creditors need to have an indication of the probability of default of every loan seeker who approaches them, for obvious reasons.

There is still a way of explaining the importance of credit score. Flatly, it tells a lender or credit institutions like banks, how likely is it that a borrower will repay a loan based on the individual’s

  • Pattern of credit usage in the past and
  • Loan repayment history

It is possible for every individual to check his or her own credit history. In order to check the history, one should obtain a copy of one’s credit report. In India, one can avail this from any of the three rating agencies, namely CIBIL, Experian or Equifax. The records include every loan or credit account that one has along with detailed information of the concerned individual’s entire payment history. Thus, the credit score is calculated based on a person’s financial track record as noted in the individual’s credit report.

Thankfully, it is possible to improve one’s CIBIL score. However, one should remember that there is no quick-fix procedure to achieve this overnight. It takes some time for the process to take effect. But, it is possible to improve one’s score significantly within a short time frame and to achieve it one has to adhere to a set of rules. As such, it is an excellent habit to check one’s credit scores at regular intervals so that one remains updated about one’s financial health in a periodic manner.

As the first step towards improving one’s CIBIL rating, one should keep the credit card balance as low as possible. A higher credit limit allows an individual more flexibility in making payments and also helps in keeping the balances low. Setting up payment reminders proves helpful in avoiding missing payment deadlines. Credit score drops because of missing payment deadlines. In this age of digital technology, it is pretty easy to ensure the monthly balance paid automatically through electronic transaction directly from one’s bank account. Moreover, one can have the bank shoot timely reminders through SMS or emails as well. If one spends over 30% of one’s credit card limit on monthly basis across all existing cards, it negatively affects the individual’s credit rating. So, ask for higher credit limit and maintain or cut down the monthly expenditure below 30% of the credit limit. This is an effective means to improve one’s credit score. In fact, improving one’s credit score is not impossible, provided one sticks to the right strategies with dedication and involvement.

Top 5 Ways on How to Make Credit Cards Work for You

Make Credit Cards Work for YouHaving a credit card (or cards) may not necessarily mean you have bad debts, I’m sure in this day and age, most adults carry one – everywhere. However when used without planning or management, having just one card can mean a huge financial issue in the long run.

So here are the top 5 TIPS on how you can utilize a Credit Card to your maximum benefit so that it works for you.

1. Don’t Trust Self – Organize Direct Debits Arrangement

Once you get that “APPROVED” notification, make sure you get around setting up an account where you can easily have the Closing Balance direct debited from this account at the end of every month (or billing month). This account can simply be an everyday/ most basic account (preferably one that don’t cost a monthly fee) where you can budget your Credit Card spend to. This way, you will never miss any payment due dates, and will never set yourself in that trap of irrevocable-cycle of credit card interest repayments.

For example, when you first sign up for a credit card, most of the bank offers an “X day Interest Free Period (e.g. 55 days)”. This means you get to spend up to your limit (e.g. $1,000) for up to that 55th day. On the 56th day, you are expected to make the closing balance for that particular period. If you don’t, you get charged the Purchase Interest Rate, which can range between 14% – 25% per annum. Now, this is charged and accumulated on day 56th onwards up until you can pay that down to $0 owing balance!

So – imagine this chaos for a minute; On that card, you have $999 owing balance. You are trying to repay $100 each week. But you have ongoing monthly contract linked to this credit card each month for your phone, internet, gas; yet that apparently-not-so-amazing piece of plastic is accumulating you 20% interest on the balance every day… Are you confused yet? Well that’s how they get ya! Before you know it you are just stuck, simply stuck in this game of never ending money drainer.

The only logical way to salvage that icky situation is pretty much destroying the card, literally. So make sure you set up that Direct Debit. Pronto! Because you just can’t trust self.

Guess what, it will probably force you to make sure you are aware of your money, so you don’t go on spending on that credit card as unless you can afford to make the repayments.

2. Keep Your Limits Low

Just because you can get a credit card with a higher limit, doesn’t mean that you should take it. Sometimes you can get carried away knowing how much you have in the balance and walking in that same trap again. Don’t lead yourself into that bad habit.

Basically the way it works is, once the bank notice how good you have been with your money management – you know, with all that direct debit set up so you pay everything on time, on budget – they tend to send a “Good news!” notification – to congratulate you for the offer to be able to ‘upgrade’ to a higher limit.

Note to self, this is not really a ‘reward’, it’s simply a nudge to say “Well done on being a responsible adult. We trust that you can manage your money so here’s more money for you to spend, but remember you STILL gotta pay us back!” Get it?

3. Review Shopping Habits

Now – the fun part! Think about your shopping habits, do you go to specific grocery stores, shopping centre, cinemas or even specific fuel stations? Check if they have any Points Rewards Affiliates with the credit card company or vice versa. For example, most Credit Card Companies (Banks) have affiliate programs with Airlines – and if you use that card in certain fuel stations/ grocery stores – the points are doubled!! So if you’re anything like us jet setters, or love a free or even half-priced holiday; make sure you abide to that rewards program!

It really is a no brainer – you need to spend on those groceries every week anyway – might as well earn some travel points on them!

4. Don’t spend it on Doodads

There should be a separate account for this.

If you aren’t familiar with Robert Kiyosaki and his famous game, the Cashflow Game, then you probably don’t know the term ‘doodad’. Doodads in this instance means, gizmos/ gadgets that are nice to have but you don’t necessarily need.

Don’t get me wrong, of course you can have your ‘nice’ things – like your dream home theatre, or that plush armchair you’ve been eyeing since your cat invaded your favourite chair. But! If you manage this right, you should have a “reward/ gift” savings account set up for you, partner and/or cat, so you don’t have to dip into credit card debts.

Just don’t get into bad debts if you don’t have to.

5. Create, Maintain, Destroy

Who doesn’t love having a Credit Card? I have 2, I think my dad has about ten (10) times that, purely because he loves points hoarding. Oh plus where he lives (Indonesia), you get discounted meals (50% off each time) if you use specific credit card in that restaurant. #winning

But like I said before, once you stepped into that ‘never ending money drainer’ game (even if it is an accidental move) – you gotta let that go.

If you can’t maintain it – for some reason you are not able to make repayments on those Interest Repayments then you have to stop using the card. Ring up all the providers to cancel any bills linked to it and destroy the card, whilst you try and pay it off to zero.

Once you have paid it all off, you may reapply for another card down the track. Just so you can start from a clean slate! Yay hooray!!