You’ve met the love of your life and now you want to make the ultimate commitment. No, it’s not marriage – it’s going into a mortgage together. After all, while the average marriage lasts just over 12 years, according to the, most mortgages in Australia are taken out over 30 years.
But what happens if one of you has a stellar credit score and your other half has a patchy history when it comes to paying off your debts? Here are seven steps you can take to help get your loan application across the line.
At the start of any serious relationship, it’s an idea for both sides to be open and honest about their financial history. Get everything on the table. This will reduce the risk of any nasty surprises when it comes time to apply for pre-approval for a loan. It’s important for both partners to understand credit applications stay on your credit report for five years. Why not use ClearScore’s free credit report service to get a copy of your report?
It’s an idea to talk to a mortgage broker or bank about how much you can realistically borrow if one of you has a poor track record when it comes to money. If that’s the case, you may need to adjust your expectations about how much you can borrow. Or you may need to wait a little longer to apply for a loan. Any bad debts (eg. defaults) will stay on your credit report for up to five years. You can use that time to add to your deposit and develop financial disciplines so the bank can see you’re on top of your money.
Make sure both partners’ names are on any shared obligations such as a car loan. Banks are likely to look favourably on couples with a history of paying their bills on time and in full, even if one side has a patchy track record.
When someone guarantees a loan, they agree to pay back the loan for you if you are unable to. Asking someone to guarantee your loan might help to counteract one partner’s poor credit rating. But make sure anyone going guarantor understands the consequences if you as the borrower are not able to repay the loan. The guarantor’s own house could be at risk under these circumstances.
Some neo banks and other non-bank lenders have novel ways of assessing risk and may be more prepared to extend credit to people with a blemished credit record. Neo banks are new banks that don’t have branches and do most of their business online. Non-banks don’t have a full financial services license but still offer many of the products and services a traditional bank provides. You can go to ClearScore to find a range of banks, non-banks and neo banks.
Check out all the different loans available and assess which ones may be appropriate for your circumstances.
Some lenders may be prepared to offer people with an impaired credit history a loan if they are prepared to pay a higher interest rate. This reflects the borrower’s higher risk profile. The more risky a borrower is, the higher the rate of interest they will pay. But don’t pay over the odds. Do you sums and work out whether it might be better to wait until you’ve shored up your finances, rather than paying very high interest rates in the short term.
Think about taking out the loan in one partner’s name only if one of you really can’t get a loan in the short to medium term. You may not be able to borrow as much if you choose this path as the loan will be in one borrower’s name only. Although this might mean you can’t borrow as much, it’s also a way to ensure you’re not overextending yourself. Before you apply for a loan, make sure you and your partner get a free copy of your [credit report](https://www.clearscore.com/au/credit-scores) from ClearScore. That way, you’ll be fully informed when you go to apply for a loan together.
Next step: Explore theavailable to you through ClearScore.