Everything You Need to Know About Your Credit Rating
A credit rating system is a tool used by the banks to determine whether you have a reliable financial character and are likely to repay your debts. A high score indicates creditworthiness, whereas a low score suggests that you are a risky customer and may necessitate the banks either rejecting your application or charging higher rates.
What is a credit rating?
Your credit rating, or credit score, is a number between 0 and 1,000 or 0 and 1,200, depending which reporting agency is used. That number is rated on a 5 point scale, and your position on the scale tells lenders how risky it is to lend to you:
- Excellent - you are highly unlikely to have any adverse events harming your credit score in the next 12 months
- Very good - you are unlikely to have an adverse event in the next 12 months
- Good - you are less likely to experience an adverse event on your credit report in the next year
- Average - you are likely to experience an adverse event in the next year
- Below average - you are more likely to have an adverse event being listed on your credit report in the next year
Banks generally run a credit report with every new application for loan products, however they must have your written permission to do so (this is usually contained in the terms of a loan application form). As of September 2018, credit reporting in Australia has changed significantly and banks now have detailed access to your credit history. A typical credit report will show:
- Personal details, and those of any joint applicant.
- Lender and limit of any credit cards.
- Lender and limit of any other credit products, such as home loans, personal loans, or business loans to which you are a guarantor.
- Details of any arrears that were previously overdue and have now been paid.
- Defaults and infringements, such as unpaid utility bills which are 60 or more days overdue.
- Credit applications lodged in the past 12 months.
- Debt agreements such as bankruptcies, court judgments and insolvencies.
- Repayment history for credit products held in the last 2 years. This will show details of any repayment made more than 14 days after the due date.
- Commercial credit applications dated after March 2014.
- Details of any other company that has requested your credit report in the last 12 months.
Can I get a loan with a bad credit rating?
Applicants with a bad credit rating are not necessarily ineligible for loan products, however it can make the process more difficult. For consumer products you may be asked to provide a higher deposit, whereas for business products you may be charged a higher interest rate.
At Lendfin, we have access to specific home and business loan products which may be suitable for those with low credit scores. Contact us to discuss how we can help you improve your credit score whilst accessing the funds that you need.
How can I improve my credit rating?
The process to improve your credit rating is quite straightforward, but it does take time and diligence on your part. To improve your rating you could:
- Reduce credit card limits
- Consolidate multiple personal loans and credit cards
- Limit your applications for credit/loan products
- Ensure all bills and loan installments are paid on time. We advise setting up direct debits so that it happens without you having to think about it.
Keeping an eye on your credit score will not only improve your chances of loan approval, but may also make you eligible for lower rates. Speak to a Lendfin expert to discuss how you can improve your credit score today.