Understanding your credit score


When the time comes for you to apply for a home loan, you will need to ensure that all your finances are in order. This means more than just your savings and salary. 

Mortgage lenders perform a credit assessment to weigh up what their risks might be when lending you money. This is a key step at the start of your home buying journey. It determines:

  • If they lend you money 
  • How much they will lend
  • What interest rate they offer you. 

Each lending institution has its own method of measuring credit risk, but many will want to look at your credit score.

Lenders don't make their credit criteria public, so you won’t know what elements they will focus on. The best thing you can do to be prepared is to make sure your credit score is as healthy as it can be. It is a good idea to get your credit score into the best shape possible, before you start house hunting.

Credit score

This is a measure of your “creditworthiness”. Lenders use it to work out how likely (or unlikely) it is that you will default on your mortgage repayments. Looking into your credit history, and crunching numbers, helps lenders to calculate a figure that will be your credit score.

How to get your credit score

You can check your credit score online, for free, but be aware that the results may vary depending on which credit reporting agency you use. So check with more than one credit score provider to get a consistent and reliable measure of your credit rating. 

These websites can help you to track down your personal credit rating:

  • Creditsavvy
  • Credit Simple
  • Finder
  • Getcreditscore
  • WisrCredit

How to improve your credit score

Your credit score is forever changing. It can increase or decrease, depending on the information contained in your credit report. It can also change, even if your financial habits haven't. 

Here’s why your score might change:

  • Applying for a new loan or credit card (even if you don’t go ahead with it)
  • A listing on the credit report expiring, such as a previous default
  • A change to your credit limit on an existing loan or credit account
  • New information from a creditor, including closing a loan or credit card account
  • Or late repayments on a loan or credit card

You can improve your credit score by:

  • Lowering your credit card limits
  • Consolidating multiple personal loans and/or credit cards
  • Limiting your applications for credit

Frequent applications for small loans or a lot of enquiries on your file within a short time frame can negatively impact your score.

Don’t shop around for credit and apply for lots of loans just to see what you can borrow. Each time you apply for credit (whether that’s a credit card, personal loan or car loan) you’re effectively reducing your credit score as these enquiries are saved in your credit report.

You can access your credit history and credit score as many times as you like without affecting your score.

You will also need to pay all of your bills on time and, if you can, pay off the full amount of your credit cards each month - not just the minimum. This is good financial behaviour that will be rewarded with a good credit score.

If you default on a loan or utility bill, then pay up. The default will stay on your file for five years, but if you have paid it off, then it will reduce the negative impact on you while also showing that you can be financially responsible. Over time, the impact of defaults will reduce as you prove yourself to be trustworthy.

Check for mistakes in your credit score

Mistakes do happen. Having your financial records and paperwork up to date will make it easier to dispute any issues if they arise. Check the report carefully to ensure all the details are correct, as an issue could be something as simple as your personal contact details. If thee is an issue, then contact the institution who supplied the score and have it corrected. Your credit score will be a determining factor on whether you get into your first home.

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