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Finance & Mortgage Selection
What is the best home loan for bad credit?
Just because you have a low credit score (sometimes referred to as bad credit) doesn’t mean you’ll miss your opportunity to own a home one day. There are a few steps you can take to get a home loan.
What is bad credit?
In Australia, bad credit is often associated with a low credit score. Your credit score is a number lenders use to assess the risk of lending you money. You can find out what your credit score is for free by visiting Get Credit Score. When it comes to applying for and taking out a home loan, your credit score will help a lender determine the amount of the loan and the interest rate. It’s a numerical figure that represents how likely you are to pay off loans, credit cards and utilities. But it can also impact your ability to take out a home loan in the future.
Getting a home loan with bad credit
If you’re applying for a home loan with bad credit, there are a few options to consider:
1. Saving a deposit :-
Saving a deposit that’s more than 20% of the property’s value will help convince your lender of the limited risk you pose as a borrower..
a. Comparing your options :-
To ensure you get a mortgage that suits your situation, carefully compare home loans before making a decision.
b. Specialist lenders :-
There are specialist lenders who will carefully consider your application and credit history, as opposed to allowing a computer program to give you the green light. All this your FAMS Broker can do for you.
Associated risks of applying for a home loan with bad credit
There a few risks associated with taking out a home loan:
1. Small loan amounts:
You might not be able to borrow as much as you’d like. This means you’ll need to reconsider your budget, or save a bigger deposit..
2.High interest rates:
Your lender might approve your loan with a high interest rate. This will impact your repayments and the amount of interest you pay over the life of the loan. Plan your budget carefully to ensure you are able to afford your repayments.
a.Lenders mortgage insurance (LMI):
LMI is a fee lenders charge to protect themselves against the risk of loans not being repaid. With bad credit, the risk of lending you money is high, and therefore a fee for LMI is usually included.
b.Damaging your credit score:
Your credit report will include all references to any loans or credit cards you have applied for in the past five years. Applying and being rejected for a loan will go on your credit report, which will be taken into account in determining your credit score.
To avoid these risks, consider improving your credit score before applying for a home loan. You can do this by:
- Paying off as much of your debt as possible
- Maintaining a steady income
- Not taking out any other loans or credit cards
- Paying your bills on time (i.e. phone and utilities)
What is my credit score?
When comparing and applying for loans – whether it’s a home loan, a personal loan or even a credit card– you might come across the term ‘credit score’. Your credit score helps lenders determine how much you can borrow, or even if they’ll lend you money at all.
A credit score:
- Is a numerical figure that represents your credit history
- Allows lenders to evaluate the risk of lending you money
- Reveals your aptitude for repaying previous debts
How is a credit score calculated?
A credit score is essentially a number that grades your credit history. It takes into account every time you’ve applied for credit over the past five to 10 years, as well as how consistently you’ve made repayments. It uses this information to provide a number that lenders and credit providers can use to assess how likely you are to repay a loan:
- It takes into account home loans, personal loans and credit cards, as well as telephone and utilities
- It takes into account every time you’ve applied for credit, not just the successful applications
- It may also consider your age and employment, as well as how long you’ve lived at your current address
Why is your credit score important?
It’s easy to find out your credit score. Simply contact Get Credit Score and sign up in less than 60 seconds. It pays to find out what your credit score is before applying for a loan,s you’re not surprised by the outcome of your application.
What happens if you have a bad credit score?
If you have a bad credit score, the first thing you should do is go through each item and make sure it’s accurate. There are times when a credit provider may record a black mark against your name when it wasn’t warranted. If you notice something isn’t right, you should always contact the company that made the mistake so they can amend it. If they fail to fix their error within 30 days, you can contact company’s independent dispute resolution scheme.This will be either the Financial Ombudsman Service (FOS) or the Credit and Investments Ombudsman (CIO) for products such as loans or credit cards, and the Telecommunications Industry Ombudsman or Energy and Water Ombudsman for errors with other bills.
How can you improve your credit score?
If you do need to repair your credit score, the first thing to remember is to give it time. Defaults usually only stay on your record for five years. In the meantime, you could:
- Make sure you’re receiving all your bills and set up email and SMS alerts to remind you to make payments on time
- Set up auto-deducts so that your bills are paid automatically
- Consolidate debts into one loan, so that you only have to make one payment a month
- Avoid taking out more credit
- Continue checking your report