Thinking of buying your first home? It’s time to take a closer look at your credit score.
This number can play a big role in your mortgage options – a low score could limit your choices, while a higher score can open up better terms. So, here’s what you need to know to make your credit score work for you.
What’s a credit score?
A credit score is a number that represents how well you’ve managed your debts in the past. It’s based on details in your credit report, such as whether you pay your bills on time, how much debt you have, and any history of missed payments.
In New Zealand, credit scores generally range from 0 and 1,000, depending on the reporting agency. The higher your score, the more ‘creditworthy’ you appear to lenders, which can improve your mortgage options.
Why credit scores matter for first-home buyers
For first-home buyers, a sound credit score is key. Lenders look at your score to assess the likelihood that you’ll repay a loan. A strong score can help you qualify for better mortgage terms, while a lower score might mean fewer options or higher costs.
Here’s how it works.
When you apply for a mortgage, lenders assess your credit score as part of their decision process. It’s a quick snapshot of your financial habits and one of the key factors in determining your loan terms.
With a higher credit score, you’re seen as a lower-risk borrower, increasing your chances of approval and access to competitive terms. On the other hand, a lower credit score might limit your options. You could face a higher interest rate, or even qualify for a smaller loan, which can restrict your choice of homes.
That’s why it’s important to make sure your credit score is in good shape before applying for a mortgage.
Need to improve your credit score?
The first step is to check your credit report.
In New Zealand, you can access your credit report for free from three main reporting agencies: Centrix, Equifax, and Illion.
Reviewing your credit report is crucial—sometimes mistakes, like an unpaid debt or outdated information, end up on your report. If you spot any errors, contact the credit bureau directly to have it corrected. Ensuring your report is accurate is a simple but effective first step toward improving your credit score.
So, what if you have a low credit score? Don’t lose heart. Here are some practical steps to consider:
Consistently paying your bills on time is one of the best ways to boost your credit score. This includes rent, utilities, and credit card payments. If you tend to forget, consider setting up reminders or automatic payments to help stay on track.
Lenders prefer to see that you’re not heavily reliant on debt. Try to pay down any outstanding balances on credit cards and personal loans. The lower your debt, the higher your credit score is likely to be.
- Avoid taking on new credit
Applying for new credit cards or loans before applying for a mortgage can lower your score slightly and may signal to lenders that you’re taking on more debt. If possible, avoid opening new credit accounts in the months leading up to your mortgage application.
Positive credit habits take time to reflect on your score, so consistency is key. Even small steps, like making minimum payments on time, can add up and improve your credit profile over time.
Get in touch: we’re here to help
Improving your credit score can feel overwhelming, but every step you take counts. A strong credit score can unlock better mortgage terms, making your home-buying journey smoother and potentially saving you money in the long run.
Want to discuss your options? Get in touch. Your Mortgage Link adviser can help you assess your situation and ensure you’re set up to get the most out of your mortgage journey.
