What is your credit score and why does it matter?

Your credit score is a number between 0 and 1,200, based on your financial habits. Anything above 700 is considered good, with over 800 being ideal, anything under 600 is considered bad. They have been created using years of data patterns to help lenders lend to borrowers who are less likely to default. The higher your credit score, the more likely you are to get a great loan and be offered credit. The lower your credit score, the harder it is to secure a loan of any sort and the fewer options you have in terms of features, benefits and interest rates in a home loan.

Each bank’s own scoring system is a closely held secret; it’s not known to mortgage brokers, bank managers, or even credit assessors. However, you can check your credit score and credit file online for free.

1. Equifax Australia (formerly known as Veda):  Equifax.com.au  Phone: 1300 762 207
2. Dun & Bradstreet: CheckYourCredit.com.au Phone: 1300 734 806
3. Experian: Experian Credit Services Phone: 1300 783 684

What affects a credit score?

Each bank has it’s own credit score categories, common elements are as follows:

Loan inquiries
Every loan inquiry, application for credit or similar you make shows up on your credit file and impacts your credit score. Lenders can see an inquiry was made but that cannot see if it was accepted or rejected. As such, multiple applications for credit cards, home loans or any other credit can impact your score negatively.

Defaults
Defaults, where you did not repay debt or didn’t pay a bill can affect your score significantly, but there is no way of knowing by how much.

Net asset position
Your age, income and net assets impact your score and ability to get credit. For example, if you are older with a high income, but no assets it will be harder for you to get a loan.

Your job
How long you have been at your job and your income impact on your score. Being in your job for a while is a positive thing when it comes to credit scores.

Your address
How long you’ve been where you currently live will impact your score. The longer you’ve been at one address the better it is for your score. Moving around a lot can negatively impact your score.

All financial transactions
All the bills you pay and whether you pay them on time, any contracts such as mobile phones, credit cards, personal loans, home loans, all debt, assets and income impact your credit score. The more positive your finances are such as paying all bills on time, increasing your net worth, your assets and income all have a positive effect on your credit score. Negative financial issues such as not paying bills on time, too many credit applications, defaulting on loans and not having a steady home or job negatively impact on your credit score.

Why does your credit score matter?

Your credit score will help lenders determine if they should lend money to you or not, what interest rate to give you and which loans you are eligible for. Higher credit scores get lower interest rates and more features and benefits on loans. Lower credit scores have fewer options, higher interest rates and are more likely to get rejected which will lower their score further.

What can you do?

• Know your credit score and check your file for any defaults or issues.
• Get them sorted as quickly as possible.Pay all your bills on time.
• If you are close to defaulting on a loan, talk to the loan provider first and see if they can pause payments or if they have a financial hardship team. There are options to help before you default and these options don’t go on your file.
• Fill out all applications accurately and completely. When you apply for a home loan or any other credit, make sure you complete every section. For example, if you have $200,000 in superannuation but forgot to complete that section on the application, the lender will view that as you have no superannuation and it impacts your chances of getting the loan.

To discuss your home loan options, speak to a broker today.

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