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The Importance of Your Credit Rating
Why is your credit score important? In the money-orientated area of your life, it can be vital. To all extents and purposes it is your “passport” in the financial world, especially if you hope someone will help pay for your fiscal journey. If it’s good, clear and high, it will be a lot easier to cross certain money borders. If it’s bad, you could be turned back, and sent home with shattered goals instead of celebratory photos in your carry-off bag. Baxton Property Management in Hobart put together some pointers on the credit situation.
What is a credit rating and what affects it?
Financial institutions use your credit score as an evaluation of your risk factor if they should loan you more money. The score is calculated according to how you have handled borrowed money in the past. If your rating is good, it means that you have done well in repaying money you borrowed and have paid everything in full and on time. Credit Reporting Bodies are furnished with this information every time you apply for credit, whether that takes the form of a mobile phone contract, a mortgage bond , car financing or opening an account at a shop. And they, in turn supply it to the financial institutions when you apply for more credit.
While obviously a history of bankruptcy or judgment against you would send your score plummeting, there are other factors that also affect it. These include any late or irregular payments or defaulting on debt, as well as your work history, and how regularly you have changed your address in the past decade. Making too many loan applications in a short period of time can also stand against you. Perhaps you were looking for the best deal, but it could have lending institutions further down the list thinking you have been turned down by the others.
What are the advantages of a good credit score?
One of the major reasons for making sure your credit rating is good, is to get more credit. . But it can also be a valuable asset in other ways, whether you are a renter or a would-be tenant in Hobart.
Financing Rental Property: While a good credit rating is not the only consideration taken into account when you apply for a loan to buy investment property, you will stand a better chance if your rating is good, than if you clock in at average or below.
Not only are you more likely to be granted the loan, but you may also be offered more options and lower interest rates. This could save you a good bit in monthly repayments, and a huge amount in the total money you pay out over the term of the loan. While loan interest is tax deductible against rental income at the end of the tax year, this would benefit small investors by making more of their income immediately available.
Needing another boost to your usable cash? If you have serviced the loan impeccably for a while, consider re-negotiating your loan for better options, terms and interest rates in order to ease your immediate cash flow. And if that’s not enough to finance large-scale renovations or repairs to the property, your favourable credit score would give you a better chance at refinancing your existing loan, or being approved for a new one from a different institution.
Applying for a rental: According to privacy and rental regulations in Tasmania, a prospective tenant does not have to provide owners or their property managers with access to their credit file. And the owners or managers can’t access the file without permission. But withholding permission might put you lower on the list of applicants and result in you not getting the rental. Meanwhile, if your score is good, it could give you an extra edge in landing the rental in a city like Hobart, where rental vacancy levels are currently low, so there’s a good deal of competition for any accommodation.
Why you should know your score
If your application for a loan to buy a rental property is turned down, it won’t only spell the end of your dream, but it will also push your credit score even lower. So it’s better to find out where you stand credit-wise well before you get that rug pulled out from under your feet, and keep checking it at regular intervals to keep up to date about your score. You can then set about trying to up the score if need be by rectifying any incorrect information on the CRBs’ records, by changing your financial habits, or by lowering your loan requirements before you get turned down.
Baxton Property Management in Hobart likes to keep its investment property clients (and their tenants) aware of issues and information that may affect how they conduct their business, or live their lives. However, Baxton recommends that you seek expert advice on financial, tax and other important specialised areas.
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We hope you enjoyed this article
The information contained in this article is based on the authors opinion only and is of a general nature which is not indicative of future results or events and does not consider your personal situation or particular needs. Professional advice should always be sought relevant to your circumstances.
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