What is CREDIT SCORES and why its IMPORTANT FOR Real Estate?
An individual’s credit score is calculated by analyzing his or her credit report.
What constitutes a credit report?
A credit report consists of a person’s credit history: the amount he or she has borrowed in the past, was it repaid on time? The report also includes information concerning credit like personal loans, loans for buying real estate investments, loans for car purchases, etc.
Applying for a home loan or even applying for rental property investment in Sydney the credit score gives the lender a better perspective. A credit score or credit rating consists of a number between 0 to 1000 or 0 to 1200 depending on the credit bureau used. The higher the credit score, the easier the possibility of a loan. Conversely, the lower the credit scores are the tougher the possibility of a loan. For large loans like those for real estate or rental property, one needs to maintain a high credit report and if a credit rating is low, the individual will need to go about raising his or her rating.
How do credit scores help in real estate?
A quality credit score is considered the most valuable weapon in real estate investment because it not only brings a choice of lenders but also helps the individual attract attractive mortgage rates.
EXAMPLES OF CREDIT SCORE RANGES FROM THREE MAJOR REPORTING AGENCIES IN AUSTRALIA
A credit score of 1000 (PERFECT SCORE)
If you are maintaining a credit score like this, then you are considered perfect by the three major bureaus in Australia like EQUIFAX, EXPERIAN, and ILLION. This kind of credit score not only gives power to an individual for home loans or rental property but also allows them to apply for bigger loans like real estate investment loans in an expensive city like Sydney. The borrower with this credit score has the potential to bargain and negotiate.
A credit score of 800–999 (EXCELLENT)
With this credit score, many lenders are willing to give you the loan you have requested because the score is higher than average. A credit score like this also helps the individual who is planning to get started in the real estate business/investment market in Australia. An 800–999 credit score enables the possibility of many offers and good rates.
A credit score of 700–799 (VERY GOOD)
A credit score or credit rating like this will not attract any problem in obtaining a loan if he/she can repay the loan on time. Yes, you might not get your choice of lenders but many lenders are willing to give you a loan. An individual with this credit rating might not get an attractive rate. One can also improve the rating by limiting the number of loan or credit applications and paying the earlier credits.
A credit score of 500–699 (AVERAGE)
An average credit score holder is not seen as a risky borrower to lenders and it is believed that a person with this score will not fall into a major situation like bankruptcy.
A credit score of 300–499 (FAIR)
A person with a fair score might be very young and that is why they might be a risk to many lenders. These individuals need to take time to build up their scores.
A credit score of 0–299 (LOW)
A person in the lowest credit rating category is considered to be the riskiest potential lender and is deemed to have a very high chance of bankruptcy. This person will have a negative history of not repaying their loan. These individuals need to start repaying their loans as soon as they can and follow other tips to improve their credit rating.
Ways to boost your creditworthiness for large debts like home loans and investment loans.
Obtain a copy of your credit score report.
The first step is obtaining a copy of your credit rating files from any credit reporting bodies in Australia like Equifax or Experian to check your credit. This will help you to see clearly where you stand in your creditworthiness.
Analyze your credit file and rectify if needed.
There can be many errors in any Australians’ credit file which lowers credit scores. So, check your files and rectify the errors to increase creditworthiness.
Bills, car loans, home loans, etc pay them on time, as late payments will reduce your credit score. Payments made on time will increase the trust of the lender in you and thus you will increase your credit rating.
Don’t move or change homes or work too many times.
All lenders seek a stable character before providing loans for any purpose. So, if you are constantly moving houses and changing workplaces too often, your creditworthiness goes down.
Keep down the number of credit applications.
Too many applications for credit reveals a borrower’s desperation. These situations make lenders cautious and can decrease the credit rating of an individual.
Build a good history and relationship with your bank
Focusing on a healthy bank balance, frequent deposits, and a long-term bank account help to build a good relationship and reputation with the bank thus also helping in creditworthiness.
So, by keeping in mind these small steps and taking some time in building up your credit rating, one can easily increase your personal score and in the future enjoy major benefits like real estate investment loans in cities like Brisbane, Sydney, and Melbourne.
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