Credit Scores by Phil Rice of BAA

A credit score is a tool that all banks and lenders use to ascertain your credit worthiness. Every person has their own individual credit file listed with agencies such as VEDA and Dunn & Bradstreet. The very first time you apply for credit, your personal credit file is opened / established by these credit reporting agencies. Every time there- after when you apply for credit, the bank or lender will get a report from one of these agencies about you to ascertain your credit worthiness.

When they apply for a copy of your report, the bank will fill out an application which asks for your current address & personal information, what type of loan you are applying for and how much you are applying for. This information is then updated to your file and that bank who applied for your report will leave a footprint which indicates you just applied for further credit. Every time you apply for credit (even for a phone), your credit score is reduced.

Similarly, if you default on a loan or credit card, don’t pay your Telsta bill, electricity bill, Council rates or even bankruptcy – this will all appear on your credit report and lower your credit score.

The actual report is quite comprehensive and you can also get a copy of your own report by applying to these agencies for it. Companies like EZ Finance, who have an Australian Credit Licence, are able to get a copy of your report for you WITHOUT leaving a foot print to say you applied for credit. This is because they are not actually a lender of money. The purpose they would do this for you, is to peruse your credit file to see if there are any discrepancies on it, prior to attaining finance .If there are any discrepancies, EZ Finance experts can work with you to deal with the discrepancies to ensure you will be able to get the finance you need. The more times you apply for credit through a bank or Lender, the lower your credit score becomes, so please be very mindful NOT to make too many enquiries for finance.

An example of just a small part of a credit report is below. The report suggests a number (in this case 821) which represents how “risky” this customer might be in a scale between -200 to 1200. The higher your score is the better and this will determine the outcome on your finance application.

Many banks these days use the credit report as part of their initial screening process. If you have a default or any adverse credit issue on your report, the banks system may AUTOMATICALLY reject your finance application and decline it, so it pays to know in advance where you stand.

What if your credit score is low?

If you have a low credit score or poor credit file, Finance experts may still be able to help you. There may be two options;

  1. Your finance broker expert can recommend to you a credit repair agency that specializes on fixing up your credit file. Many people don’t realise that a lot of defaults are added in error or illegally. There are protocols and rules about lodging defaults onto someone’s credit file. The credit repair company will charge you a fee to repair your credit file and it could take several weeks or months to repair. There may also be some credit files that can’t be repaired due to the nature of the defaults, however, the credit repair company will better advise you on this.
  2. Depending on the nature of your credit file, your finance expert might still be able to get you the finance you need as there are many financiers who will lend to people with a poor credit report. These financiers understand that people sometimes reach a difficult time in their lives and all they may need is a written explanation as to why the report is poor. These lenders will charge a higher interest rate and perhaps higher fees, but that is only because the risk to the lender is greater, so they charge accordingly.

Get good advice

It’s quite common for people to get multiple credit enquiries from simply calling several banks and asking them what their borrowing capacity is and filling out some forms. The branch staff often may not know or care about the effect of enquiries on your credit score, so they simply lodge an application to “capture” you and hope for the best. The end result is that most other banks will not lend to you because you might have a busy credit file.

  • You should only apply with the lender that you actually intend to get a loan with! Don’t put in multiple applications in the hope of getting an approval, this will do more harm than good.
  • We get a lot of phone calls from people who are in excellent financial positions with a good income, and still get declined by their bank! A major cause of these declines is that the customer has had multiple enquiries on their credit file, which caused them to fail their bank’s credit score. The good news is that if you do have multiple enquiries on your credit file, there are still some lenders that can help.
  • Each lender has their own credit scoring system, so each will have a slightly different result. Some lenders don’t consider a high number of credit enquiries to be a high risk, while others will decline your loan outright simply based on the length of time in your current job.

Seek professional finance advice from a finance broker with over 150 different banks and Lenders, like EZ Finance, who have the scope to correctly deal with complicated finance applications.

One last thing, while the banks and lenders use this information to determine your credit worthiness, it is NOT the only factor they use when assessing an application for approval. Things like length of employment, the security offered, how many dependents (children) you have, and many more things are taken into account, right down to the actual banks opinion of YOU.

We have seen cases where the applicant was in a great financial position to apply for a loan, however, the application was declined by a particular bank. The reason: the bank (ALL Banks) have a long memory. If you had a discrepancy with that bank 15 years ago, guess what, that issue is documented on the banks own file of you and a red flag appears if they perceive you as being any type of risk to the bank. If you were to ask, “why was I declined” they will not tell you the truth, only that you may not “fit the bank’s policies”. The simple remedy here, would be to apply to another bank, who may happily oblige with some finance. While all banks and lenders can see your credit history on your credit file, they do not have access to individual banks “notes” on you.

Lastly, if you are declined by a bank or lender, there is a good chance that a different bank or lender will approve your application as they all have different lending criteria and appetites for different types of clientele (like self-employed people who normally find it harder to get finance). This is where a good finance broker comes in really handy, before you start on the journey to applying for finance.