Advice matters
How your credit score can affect your mortgage journey

Your dream home may be tangible – you can picture the facade, the garden, the inviting living room. But there’s something intangible that plays a pivotal role in turning that dream into reality: your credit score.

When it comes to getting approved for a mortgage, your credit score can be the difference between a welcoming green light and a resounding red stop signal on your application. So, let’s see how it all works.

Understanding your credit score

In short, your credit score is a numerical snapshot of your financial reliability, calculated based on your credit history. Ranging between 0 and 1,000 or 1,200 depending on the credit reporting agency (Equifax, Centrix or illion), a higher score indicates to lenders that you’re likely to be a reliable borrower.

Importantly, your credit score is not a static number – it changes over time as your financial situation changes. It’s a good idea to check your credit score regularly, so that you’re aware of your financial standing.

How your credit score impacts your mortgage eligibility

Think of your credit score as a report card that lenders use to determine your creditworthiness. It looks at various factors like how promptly you pay your bills, the amount of debt you have, and how often you apply for new credit.

When it comes to securing a home loan, your credit score can determine not only whether you’re eligible for a mortgage, but possibly also the terms of your loans.

What can you do if you have a low credit score?

Getting a mortgage with a low credit score may be more difficult, but it doesn’t mean it’s impossible.

To get started, it can be a good idea to contact your mortgage adviser. Mortgage advisers understand the criteria New Zealand’s lenders use and what they’re looking for in potential customers. Make sure you provide them with all the information they need to assess your circumstances. If your credit score isn’t too bad, a lender may agree to lend to you if you have less than the usually required minimum 20% deposit. In some cases, considering non-bank lenders may also be an option as they have more flexibility than registered banks (however, fees and interest rates are usually higher).

Depending on your situation, you may want to focus on improving your credit score first. Remember, your credit score is not set in stone. You can take steps to improve it, such as paying your bills on time, reducing your overall debt, and limiting new credit applications. It takes time and discipline, so starting the process well before you plan to apply for a mortgage can put you in a stronger position. Once again, it’s a good idea to stay in touch with a mortgage adviser, so you can file your mortgage application as soon as your credit score is back on track.

Seek professional help

Understanding credit scores and navigating the mortgage landscape can be complex, but you don’t have to do it alone. Your mortgage adviser can guide you through this journey, providing insights into improving your credit score, and helping you find a home loan that fits your financial situation.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.