No matter who you are or what you do, when you apply for a loan one of the first things a lender looks at is your credit score, also called a credit rating. Now, you might be wondering, what is this omnipresent credit score and why is it so important for my loan application?
That is what we’ll be talking about here. So, let’s get to it.
Think of your credit score as a numerical value that is supposed to represent your financial reputation. The higher your score, the better your reputation is to a lender and the more likely it is for your loan application to be approved.
One of the first things lenders do when you apply for a home loan is to check your credit score. Your score can affect whether your loan application is accepted or rejected, what kind of interest rate you may receive, what kind of financing options are available to you, and more.
When you hold an account with a vendor or creditor, they make a record of your financial history with them. This financial information is collected by credit agencies who compile the data and store it in a credit report. Credit agencies calculate your score based on the information in your credit report. This includes things like your debts, loans, payments you’ve made to a lender or via a bank, whether you pay on time, if you defaulted on a payment, how many credit card accounts you hold, whether you ever declared bankruptcy and any other financial info.
Each agency has its own scoring method, but usually, the score is between 0 and 1000 or 1200. Higher scores mean you are a better prospect for lenders, and they will be more likely to approve your loan application. To give you an idea of how agencies rate you, we will show you the scoring brackets of an agency with 1200 being the highest score.
Please note though that these numbers are just a guide and can change depending on the agency.
A low score could mean lenders consider you a higher risk and you may face higher interest rates or even a declined loan application, so it’s a good idea to keep an eye on your score and improve it where possible.
If your credit score is low, there are steps you can take to help improve it, including:
For more details on how you can improve your credit score, check out this blog post.
As long as you have paid for any utilities or have applied for credit or a loan, you’ll have a credit report about your financial history. You can usually access your credit report online within a day or two of asking for it. Alternatively, you could get it mailed or emailed to you, however, you may have to wait for up to 10 days if you want it in this form.
In Australia, credit reports are mainly generated by three agencies: Experian, Illion and Equifax. You can contact any of these three agencies and get a free credit report. The contact info is as below:
Need help getting your credit report? Get in touch with your friendly Nectar broker.
Are you thinking about applying for a home loan? Want to know what your options are? Talk to us. We can give you helpful advice on what strategy would work best for you.