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The credit score is a baseline score of a person’s risk associated to obtaining credit. See below an example credit score from an actual credit report. The range starts from -200 and continues to +1200. Generally, a score in the green area is good. Other factors affect the credit score such as the age of the credit file, time at an address, number of applications for credit, and the type of credit applied for.
See key contributing factors for credit score noted in figure 3 below.
Uses of Credit Score
Maintaining a good credit score is very important in lender. Especially so since 2016, though there has always been a number of lenders who refer to credit scoring in their application submissions.
Recently with Veda (now Equifax) starting a positive credit reporting model, more lenders are using the scoring method. In fact, as applications move to electronic and online applications, so to will the reliance on credit scoring.
If you have found you are having issues with credit scoring, and declining of your applications - contact us via the online enquiry form or simply call us to discuss your problem.
How is Credit Score Calculated
Credit score is generated via a number of contributing factors, the actual algorithm to ascertain the score is not available however its not too difficult to understand how the score is affected.
- Credit applications - the number of credit applications gives an indication of the need for finance and their state of mind. If excessive applications are submitted in seeking finance this can depress your credit score. The number of application for the same credit should be limited to no more than 2 in a 12 month period to maintain your credit score. Be wary of online credit applications or searches for credit, as some information gathering sites request you to authorise access to your credit file - which can be mislead you in thinking they are only providing information when in fact they are credit applications.
- Types of Credit - the type of credit you apply for affects your credit score. If you apply for finance through a payday lender this will severely affect your score, and in some cases may prevent any chance of obtaining traditional finance. The reason for this is that applying for payday finance indicates you have an extremely urgent need for a smallish amount of money which presents to a lender a high risk client who may use high interest payday loans when personal needs dictate.
- Multiple changes in addresses - this has an affect on a credit score based on stability, especially with asset finance applications. Lenders who provide finance for movable assets like to have a stable residential record so they know where to asset is stored.
- Credit defaults - without saying a credit default has a dramatic negative affect on your credit score. There is more information on credit defaults on further pages.
- Other negative credit issues - other credit issues that negatively affect your credit score are: Court judgements, being a director of a company in liquidation or wind up proceedings, court writs, clear outs.
- Bankruptcy - a bankruptcy deletes your credit score. Your credit file will indicate no credit score available. This is the same for all the sections under the bankruptcy act including part 10 Insolvency (Personal Insolvency Agreement - PIA) and Part 9 Debt Agreement.
Credit score is very important when applying for traditional finance, or trying to move back to traditional finance. If you are seeking finance, or have been declined and need assistance feel free to make contact for a free confidential loan assessment via our enquiry form or call 1300 796 850.