Your credit score is one of the key pieces of information your lender uses when assessing your loan application, and it’s vital you know what it is and how it’s calculated.
Lenders look at your credit score or credit rating, which appears in your credit report to decide whether or not to approve loan applications and determine what loan terms to offer. The score is generated by an algorithm using information from your credit reports, which summarize your borrowing history.
Your credit score is a number based on an analysis of your credit file, at a particular point in time, that helps a lender determine your credit-worthiness. It is used by credit providers such as banks and credit unions, to help them decide whether to lend you money, how much they will lend you and may sometimes influence what interest rate is offered to you.
Each bank has its own credit score categories, but the main consistencies are as follows:
Every time you make a loan inquiry and credit application with a lender, it shows up on your credit score. This is irrespective of the outcome of the inquiry – the lenders can only see that an inquiry was made.
Your personal details, such as age, income and assets are also considered. Lenders use this gauge your spending habits, as they think that by a certain age you should have a certain amount of assets, and if you fulfil this expectation you have the right character to borrow.
If you leave any field blank on your application, it will hurt your chances. For example, you might have $300,000 in super, but forget to fill out that question, so you are given the worst possible rating for that field.
Keep in mind that everything on your loan application is subject to scrutiny, and the few factors above aren’t the only things which are considered when calculating your credit score.
What does my credit score mean?
Depending on the credit reporting agency used to calculate your score, it will be a number between zero and 1,200 or zero and 1,000.
The number is rated on a five-point scale (excellent, very good, good, average and below average). The position of your credit score on this scale helps lenders work out how risky it is for them to lend to you: Excellent – you are highly unlikely to have any adverse events harming your credit score in the next 12 months
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