It’s no secret that credit scores (also known as credit ratings) play an integral part in whether you’re successful in being approved for a loan or not.
These numbers have the power to secure you the loan or jeopardise your chances. The higher the score, the more likely you will be seen as a reliable borrower and worth lending to by the bank. Conversely, the lower the score, the more likely the lender will see you as being more of a risk. Depending on which credit reporting agency calculates your score, it will be a number between zero and 1,200 or zero and 1,000.
You might have some idea of what your credit score will look like. Have you kept your finances simple and in check throughout your life? Or has your credit card become well-worn and you’ve ended up having to pay off a lot of debt?
You’ll know your financial habits, yet many people are unaware of exactly what their credit score is. It’s important to know this, because, without your score, it’s hard to gauge what your chances of loan success are when you face the bank. Your credit score is determined by factors such as how you’ve handled repayments, how many credit cards you’ve applied for, what the limit on those credit cards was, whether you’ve defaulted on payments or gone bankrupt, how many accounts you’ve applied for and if you have any overdue accounts. Your personal details, such as your date of birth and address, are also included on a credit report.
You can obtain this information by sending a request to a credit score agency such as Equifax Australia, www.equifax.com.au, (which was previously known as Veda) or Credit Savvy, www.creditsavvy.com.au. It’s usually free to receive a copy of your report annually, and it generally takes up to 10 working days to be processed. If you’d like to receive this information within the same day or more frequently than once a year, you can do so for a small fee (around $60).
Once you know your credit score, you’ll be better prepared as to what to expect from the lender. A less than desirable credit score can harm your chances of getting a loan or mean you won’t be able to borrow as much, but it doesn’t always rule you out completely.
The bank will also take into consideration your income. The higher it is, the more likely you should be able to meet the repayments, however, this is not the only deciding factor. Your debt-to-income ratio is what will be considered, so if your mortgage is also quite high, this could work against you, despite your healthy income.
A large down payment is music to the ears of a lender because your loan amount request is likely to be lower. A shorter loan term will also be advantageous, as will the amount of collateral and liquid assets you may have. Your employment history will come under scrutiny, so be aware that if you’ve changed jobs recently or frequently, this could impact your chances.
It’s never too late to work towards improving your credit score. While you may regret financial decisions made in the past, focus on your future by developing healthier habits. Put a concrete plan in place to pay off your existing debt. Be vigilant with all of your repayments, even your phone or utility bills, so that you don’t end up with late fees or unpaid accounts.
New habits can take a while to stick, so as mortgage brokers we can give you some ideas on how you can stay on track and give you goals to work toward loan success. Your credit score will always be a major deciding factor when it comes to obtaining a loan, so it’s worth getting it as high as possible. We’re here to help you work with your current credit score, while improving it for the future.
For further information on credit ratings, please contact your local Loan Market Mortgage Broker on 135626 or refer to our website loanmarket.com.au.