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Credit score and renovation home loan interest rates

Written by

Shaun McGowan

Wanting to do some renovations and thinking of financing it with a home renovation loan? The first thing you’ll be asking yourself is what interest rate you’ll get, and how your credit score will affect your rate and chances of approval.

Before you apply, take a minute to check your credit score, understand how it works and how to improve it, and find out how to get a better renovation home loan interest rate as a result. Doing this could save you thousands over the lifetime of your loan… money that you can spend on adding a pool, spa, extra bedroom, or simply upgrading your choice of materials to finally create your dream home.

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How your credit score and renovation home loan interest rates work

Your credit score, which reflects your ability to make repayments as a trustworthy borrower, is used by lenders to calculate your renovation home loan interest rate. The higher your credit score is, the lower your level of risk is as a result, and the better your chance at gaining approval and a great interest rate.

Lower credit scores don’t necessarily mean you will only be approved for renovation loans with high interest rates, it just means that you’ll likely need to go to a lender who specialises in bad credit personal loans.

What renovation home loan interest rate will your credit score get you?

If you are only taking your credit score in to account when applying for a renovation home loan:

  • Excellent credit scores provide access to the lowest rates on offer. 
  • Average credit scores may result in a renovation home loan interest rate up to 5 per cent higher. 
  • Low credit scores almost always result in very high interest rates.

It’s also important to understand that interest rates aren’t the only indicator of a good deal on renovation finance and that renovation home loan interest rates are determined by many factors, not just your credit score: 

  • Your personal credit history
  • The amount you wish to borrow
  • The length of the loan period
  • The value of any collateral - if any - used on the loan
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Important: Before you agree to a renovation home loan, you’ll want to fully understand and assess the impact any monthly fees may have on both your monthly repayments, and total loan repayment amount.

If you’re more interested in saving money than just getting a good deal, it’s important to consider the length (term) of your loan. The sooner you repay your loan amount, the greater the amount of total interest you will save.

How to get a better credit score and better renovation home loan interest rates

If you’re wanting to get a better renovation home loan interest rate by improving your credit score, you have two main options to consider.

  • First, you can hold off on making your renovation home loan application while you take steps to improve your credit score, pay off any defaults or outstanding debts, correct any errors on your credit report, and wait for any negative events to be cleared from your report over time
  • The second option is to apply for the renovation home loan at the higher interest rate, and then refinance your renovation home loan further down the line once you’ve made consistent repayments and improved your credit score to a higher rating level. 

Only you will be able to decide which option is more suitable for your situation.

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About the Author

Shaun McGowan from money.com.au

Shaun

McGowan

Shaun McGowan

Shaun is the founder of Money.com.au and is determined to help people pay as little as possible for financial products. Through education and building world class technology. Previously Shaun co-founded CarLoans.com.au and Lend.