When it comes to applying for home loan, a bank may approve or decline your application, in part, based on your credit score. After all, financial institutions want to be sure that you'll be able to pay back what you've borrowed. If your application has been rejected, you might want to figure out why and find a way to remedy whatever is insufficient so that you can go on to the next step of your house-hunting journey.
This can be difficult when you don't actually know what's wrong with your credit score. In this circumstance, it could pay to get a copy of your credit file and check what it says about you. While it won't reveal your score, it'll describe a list of factors that can influence it.
Here's what you can expect to find in your credit file:
Your credit report will show your full name, date of birth, driver's licence number and past addresses. It will also list your employment history and details, which as you can imagine, would be important in seeing whether you will have the income to meet the repayments for the borrowed debt.
This section of your file will list any kind of credit you've applied for, defaults (any overdue payments of 60 days or longer where a credit provider has listed a default against you) and credit infringements. Financial institutions scour this section of your report quite thoroughly, as they want to know your financial patterns and whether you have a riskier profile.
Furthermore, many people don't actually realise that applying for many sources of credit can worsen your score, whether or not you actually chose to take them.
Your credit report will also reflect how effectual you were at making credit payments. The information listed on the report will show any due dates and you successfully meeting the repayment obligations.
Other parts of finance-related history such as bankruptcies, debt agreements, court judgements and insolvency agreements.
Something else that could be worth remembering is that every loan you apply for that is more than four-fifths of the purchase price must be mortgage insured by the lender. An article from Your Investment Property1 notes that the mortgage insurer will then also check your credit score, thus resulting in a second inquiry mark on your report.
If you meet the lender's standards but fail to meet up those of the mortgage insurer, you could still get denied.
Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstance before acting on it, and where appropriate, seek professional advice from a finance professional such as an adviser.
1Your Investment Property, Too many applications?