A bad credit score can seem disheartening, especially when you have the dream to own a home. But don't worry, there is good news!
Don’t take your bad credit score as the end of the line - it can still be possible to secure a mortgage and own a home if you're willing to put in the work. We've put together this guide below to help you to gain a better understanding of how you can turn your bad credit around so that you can reach that Kiwi dream of owning your own place.
What is a Credit Score?
A credit score can be any number between 0-1000, but usually sits between 300 and 800 for most people. A credit score over 500 is considered a good credit score. Below 500 is considered a bad credit score. If you have not applied for a loan or credit before then it is unlikely you will have a credit score at all.
Your credit score is how insurance providers, lenders, landlords and employers determine how much of a risk you may be when it comes to you lending money or paying money back.
How Can I Find Out My Credit Score?
There are 3 companies in New Zealand where you can check your Credit Report:
These services are completely free and will give you a good insight into where you're at before you apply for a home loan.
Why Is My Credit Score Bad?
Your credit score can be negatively impacted if:
• You've missed paying loans or bills
• Applied for too much credit in a short amount of time
• You have borrowed more than you can afford to pay back
• You have had to apply for a hardship loan
• You have or have had debt, and a debt collector has had to request your debt back
• You have moved money between multiple credit cards
• Your name is on bills or loans that your past or current partner has not paid back or not paid on time
• Sometimes having no credit score can be considered a bad score as there is no way to assess the risk you present to the lender
However, it's important to know that just because your credit score is bad right now, doesn't mean it can't be improved by taking the right steps over time.
Can I Still Get a Mortgage to Buy A House with Bad Credit?
Bad credit is not the end of the line! You might feel like you've been stopped at the first hurdle but it is possible to keep going with help. Buying a house is not off the table for you if you have bad credit. As expected, it can be less straightforward, so engaging the help of a mortgage broker or mortgage adviser will be a huge benefit to you.
Banks will consider:
- The severity and how long ago it happened
- Different solutions to what happened and history
There are also other lenders outside of your traditional bank which can be a viable option. A mortgage adviser will help you make the right choice here.
Who should I go through to get a mortgage? Are there other options outside of banks?
Mortgage Supply Company can help you pair with a bank or a non bank that is right for your lending needs. We can work with you to find a solution that you may not yet have thought of, such as:
- Bank options that offer a fresh start process for a one off event that wasn't your fault. You will have a higher interest rate for 12 months and if prove you can pay this correctly and on time, you will drop to a normal interest rate. If not, you stay at the higher rate.
- Near bank – a financial institution that provides lending services but does not have the status of a chartered bank. There are three different interest products on offer; Premium, mid level and lower level. If you don’t fit into premium you have other options.
If these options don’t work, Mortgage Supply Company may be able to support you with navigating your debt on a case by case basis.
What do banks like to see if you’ve got a bad credit history?
- A mortgage adviser. Enlisting a professional adviser on your side adds weight to your chances of getting a mortgage approved by banks or lenders
- Being upfront. Be open and honest with your adviser so they can work to get banks on your side
- Taking Ownership. Banks will appreciate your clear intent and honesty. Admitting there is an issue, and taking steps towards remedying the problems are admirable. Don’t let things unfold, and address problems as they arise
- Consolidate debt when you have multiple loans. Let your MSC adviser help you find the right way to do this. This means you will transfer the debt from your multiple smaller loans, by taking out a new loan at a lower interest rate, making your debt easier to track, manage, and faster to pay back
What are the advantages of using an adviser to navigate bad credit?
- You are not alone. By using an adviser, you have got an educated, knowledgeable person who can guide you through the process, giving you peace of mind and the best shot of getting a mortgage
- Self education. The best way to learn is not to have someone just fix everything for you but to work alongside someone who can steer you in the right direction and improve your financial literacy. When you work with Mortgage Supply Company, you’ll get a first home buyers guide and content to help you on your journey. Your MSC adviser will teach you how to take ownership of your situation and get back on track.
We aim to build a rapport with you from the start of your interview and will lay everything on the table, letting you know we’re here to help. It can seem scary admitting your credit score is low, but we are not here to judge in any way. Our empathetic team is here to build a trusting relationship with you and help you move forward on your goal to home ownership
- Higher Chance of Getting a Mortgage. Banks trust mortgage advisers from reputable companies, and having one on your team will make you seem less of a risk
What can I do to improve my credit?
Check your credit reports to make sure your credit score is correct. If your credit is bad make sure you’ve checked if your credit report has the correct information on it. Keep an eye out for unapproved credit accounts, default payments, and credit enquires, and question anything you were not aware of.
Assess your account conduct. Look at the last 3 months of your bank statements, and 6 months for loan statements. Are you missing payments? Are you making an effort towards reducing debt and saving? Do you have fees or fines? Figure out your sticking points and work to amend them.
Budget, know what you’re spending and where. Find ways to cut back on spending so you can redirect your money into turning your bad credit score around.
Pay back loans as quickly as possible, and pay bills and loans on time. Ask a MSC adviser on how to consolidate debts for multiple payments.
Take your name off bills or credit accounts where they are not needed, or take ownership of paying these accounts and be reliable with payments.
Get help! An MSC mortgage adviser will be able to get the ball rolling from day one so you have the best chance of owning a home.
The best time to start getting on top of your finances is today! Mortgage Supply Company are specialists in their field and can give you the best chance of owning your own home. Get in touch with us to see what options are out there for you.