All Lenders use a credit search as part of their assessment of a Mortgage or Loan Application and there are some things that are important to know.
Some Lenders use a credit scoring system, some don’t.
Mainstream lenders use a credit scoring system and basically the lower the score you achieve, the more likely the Lender is to decline your application.
One of the major factors in low credit scoring is too many searches. This is because many credit searches, regardless of whether the loan is taken, show an ‘appetite’ for debt and this is not viewed positively by any Lender.
If you are applying for a high ‘Loan to Value’ Mortgage, or one that stretches your income, don’t be surprised to be asked to explain why you have many searches in the last say 12 months.
Avoid doing these if possible, as we’ve seen perfectly good applications declined just for this very reason.
Self-explanatory really, if a bill has not been paid, regardless of the reason why, it will probably end up as a Collection, Default or Judgement and whether paid or not, it’s on the file for five years.
This can have a disastrous result when applying to a bank for a Mortgage or Loan!
Fortunately, there are alternatives, however, expect to pay a premium for a year or so and forget getting a 90% Mortgage with $5,000 worth of adverse entries. 85% is the maximum here.
This is relatively new to New Zealand, whilst commonplace elsewhere.
A search will show all lending that you have and includes Credit Cards, Car Loans, Mortgages etc. And it will also show a payment history going back up to two years.
A row of zero’s next to the entry means the monthly instalment was paid in full in the months it was due.
The positive side of this new technology is less paperwork is required – the downside is there is no hiding the Loan that went bad last year.
All Banks will use a credit search and score to assess a Mortgage or Loan, so it’s not a good idea to apply to six Banks (people do!).
All Banks, within reason, charge the same interest rate and have similar criteria, so choose a Bank you feel comfortable with and apply there.
Non-Banks, whilst they use a credit search, often do not credit score, which means greater flexibility and with new Lenders in the market, the rate is now within 0.5% of a trading bank. Non-bank lending in this space is called ‘near prime’ and is up 70% over the last two years.
So with the above in mind, the bottom line is don’t apply for credit unless you are going to use it!