Are you in the dark about why you have an impaired credit score? You’re not alone.
Just because you have an impaired credit history doesn’t mean you can’t get a home loan. At Pepper we take your individual circumstances into consideration. Here are some common problems that contribute to low scores to keep in mind.
Credit bureaus calculate your credit rating based on a range of data. This includes your overdue debts, such as mortgage repayments and credit card defaults; the number of credit enquiries you have made in the last year and how many lenders you have requested credit from.
Many lenders will then use this data to determine how likely you are to repay a loan and make regular payments on time. This may feed into their automated system used to determine the success of your loan application which can mean you could be rejected straight away because of your credit score. Lenders may also give you their own credit score, which is separate to the one provided by a credit reporting agency.
If you find yourself with an impaired credit score, don’t despair. This can happen for a range of reasons and, with good conduct, it may be possible to rebuild your credit rating over time. Looking at the reasons behind low credit scores can help you understand what a score is made up of so you plan for the future. Non-bank lenders such as Pepper use other criteria when assessing a borrower’s financial circumstances, so you may be able to get a home loan even if you have an impaired credit history, provided Pepper is satisfied that your application otherwise complies with its normal credit assessment and the product meets your needs.
1. Numerous credit applications
Making a number of applications for credit in a short period may reduce your credit score. Avoid this by doing your research before applying for any credit.
2. Unconsolidated debt
Having a number of loan accounts may be detrimental to your credit score. With several loans to pay off you may struggle with payment dates. Consider whether you should consolidate your debts into one manageable loan with one monthly loan repayment.
3. Job and house stability
If you have been in your job or home for less than six months, this may affect your credit score. Some lenders may advise you to wait until you have been in your role or living at your new house for at least a year before applying for any additional loans. While this can affect your ability to obtain a loan from particular lenders, it doesn’t necessarily mean you won’t get a loan with Pepper.
4. Lack of savings
A lack of money in the bank may affect the credit score your lender gives your application. Even if you have ongoing employment, a lender may decline a home loan application if they see no evidence of sustained savings.
5. Re-directing bills
Have you moved in the last few years? Check you re-directed all of your bills to your new address. If you didn’t, this may be affecting your credit score if those pesky bills have not yet been paid. Missed payments can stay on your credit file for at least two years so it pays to get on top of any bills that are in your name.
6. Credit card fraud
Contact police immediately if you believe you have been a victim of fraud. Protect yourself from fraud by checking credit card statements regularly for irregular activity.
7. Check your score for mistakes
You can see where you stand by ordering a report from a credit reporting bureau, such as Equifax. There can sometimes be incorrect listings on your credit report, which will impact your score. You can ask to have your report changed if something is wrongly listed. For more information about incorrect listings on your report visit the Government's MoneySmart website.
Being aware of your credit score could benefit your future spending and saving habits, which may assist with future applications. Remember that just because you have a negative credit score doesn't mean it’s the end of the line for you. There are options available for you to try and secure a home loan, and Pepper is happy to talk about your options.