A credit report is a critical part of the home loan application process. Borrowers need to provide lenders with as much information as possible to show that they are good borrowers and can be trusted to repay a loan. But is there a credit report specifically for your home loan application?
A credit report for a home loan?
Unfortunately there is no specific credit report exclusively for home loans in Australia. When you apply for a home loan, lenders use the same comprehensive credit report that is used for other types of credit applications. This report contains information about your credit history, including:
- Your current and previous debts.
- Repayment history information (RHI).
- Credit enquiries and credit applications.
- Any credit defaults, court judgments or bankruptcies.
- Current credit limits and accounts.
Credit reports comprise of credit products such as loans and credit cards, in addition to your bill-paying history. When you open a new utility account, like with a cellphone or power company, it will show up on your credit report. Most people have some form of a credit report – even if they’ve never had any other type of credit before.
A credit check is almost always required as part of a lender’s loan approval process. In Australia, there are three credit reporting bureaus operating: Equifax, Experian and Illion. These agencies collect and analyse information about an individual’s credit transactions; including taking out and repaying debts. Typically, lenders focus on the number and types of debt the applicant has borrowed in the past and whether they made repayments on time.
Should you check your credit report before you apply?
If you want to get a mortgage, it’s a good idea to check your credit report first. You should know how to check your credit. You may obtain a free copy of your credit file once a year from one of the three credit reporting agencies by filling out an online form or calling them on the phone. While the credit report will not mention your credit score (in most cases) it will contain information about the factors that influence it. Credit incidents that have had a positive or negative impact on your credit score must be recorded by the three credit reporting agencies in Australia.
Is the credit score important?
While lenders prefer to approve individuals with excellent credit, they are not prohibited from rejecting your house loan application simply because you have a bad score. They may request further proof of your capacity to repay the loan, pay a higher deposit, or charge you a higher interest rate, however they cannot simply refuse your application. If you’re looking for ways to prevent an undesirable loan offer, consider improving your credit score before applying for a home finance. You might lower or combine other debts or postpone paying off an existing mortgage if you’ve taken one out.
Following that, you may focus on keeping up with your payments and boosting your credit score. However, you should avoid applying for credit too frequently, particularly if an application has been denied. Every credit application is recorded by the three credit rating agencies and can have a negative impact on your credit score. Applying for several loans or cards might raise doubts about your financial responsibility that only get worse over time.
What about getting a loan without a credit report check?
Some little lenders may provide loans without requiring a credit check, but they may charge you significantly higher interest rates or give worse loan terms. Make sure you’re only applying to a company that has an Australian credit license. If you take out a loan from a lender who doesn’t have a credit license, your borrowings and repayments will not be reported to the credit bureaus.
If this were the case, then all your hard work building a credible credit file would go to waste. You can also enquire with home loan lenders about what score range they find acceptable and see if they offer another type of credit that could help you get started, like a personal loan.
