A credit score…and why is it important?

A credit score reflects an individuals critical information including their credit history, demographic information and the types of credit applied for.

Credit scores provide lenders’ with the probability of a person defaulting and an essential part of their assessment process. Credit reports and scores also provide timely information to brokers, enabling full disclosure and understanding for when it comes to their recommendations.

Did you know that all credit applications, both successful or not are recorded on your credit report?

Having a bad credit report may cause any lender to look twice at your home loan application. If they are not too happy with what they see, you may have to jump through more hoops, pay higher interest on your loan or even give up on your dreams of homeowners.

What is a credit report?

Simply, it refers to your history of accruing and repaying debt. According to the Australian Securities and Investments Commission this ‘history’ will include the following:

• Your name, address and employment history.
• Information about credit cards and personal loans you currently hold, or held in the past.
• Late payment information – details of any debt repaid after the due date on credit cards or personal loans.
• Defaults – Up to date information on all debts you hold that are more than 60 days late (debts can only be in default if they are $150 or more)
• Repayment history – a detailed history of repayments made to credit cards or personal loans.
• Commercial loans – all details of any business loans you’ve held will be included from March 14th 2016.

What are the ways in which you can be defaulted?

Judgements – This is a court judgement and is a public record listing and stays on your credit file five years from the date of listing.

A Clearout – This is when you have stopped making payments and your creditor can’t reach you.  This type of default will ruin your credit rating as it remains documented on your credit report for up to seven years from the date it was listed.

Why and how does it affect your home loan application?

Lenders consider their risk. If they see that you have several large defaults in your credit history they may be more likely to deny your home loan application. If there are minor inconsistencies and late payments they may instead charge you a higher interest rate on your loan, which is essentially an extra charge used to offset the risk they are taking.

There are dedicated and specialist lenders to meet all circumstances and a credit score hiccup does not spell that there are no other options.  On the flip side it pays to lay out a plan to have a clean credit history.

Is a “not so good” credit report or what you think is a “bad” credit report the hurdle to you moving forward?

It might pay to receive your free, once a year credit report from Veda to have an insight in to how lenders and credit providers are viewing your applications. We can assist you source lending to get you back on track.