If you’re in the market for any type of finance then you may have heard the term credit score thrown around. So what does is actually mean?
A credit score is a number or rating which is unique to you. It is based off all the information available on your credit report. Credit scores typically can range from 0 right up to 1200. The higher the score the less risk compared to someone with a lower credit score.
Credit scores are one of the key indicators that many lenders will use when determining to lend money to someone. They help lenders understand how well you have managed credit in the past and your potential future behaviour based off this. There are a number of key factors that go into how credit scores are calculated.
How is it calculated?
Credit Scores are calculated and reported by Australia’s leading credit bureau – Equifax. They use information from your current credit situation and past behaviour. The main factors that contribute towards your credit score include:
- Credit Limits
- On time payment of current loans (Positive Credit Reporting)
- Overdue Debts
- Frequency of which you apply for credit
- The type of loans you have applied for
- Any adverse credit history/unpaid bills
All lenders and other service provider’s access your credit information through Equifax. Likewise they provide information back into Equifax that contributes towards your credit score. For instance every time you apply for credit or finance through a lender they will check your credit file. Each check puts a hit or record on your file. Applying for too much finance can contribute negatively towards you credit score as it can be perceived that you are struggling financially – this is why it is always important to talk to an expert.
Alternatively, having no credit at all can also not be advantageous for your credit score as it shows no history. Having a good amount of credit, ensuring that all payments are met on time, is a good way to raise a credit score.
If you’re interested in some tips on managing your credit score – read our blog on “The 7 deadly do’s and dont’s of your credit score”.
What role does your credit score play in applying for finance?
Lenders look at a number of things when you apply for finance. It helps them to assess the overall ability and likelihood that you will repay the loan. Checking your credit score is one of these key things that lenders will look at as it gives them an understanding of your previous history and experiences with credit which can help to predict future behaviour.
Having a lower credit score doesn’t necessarily mean you won’t be able to get finance – it just means that lenders may view you as a higher risk and consequently you may only be eligible for a higher interest rate loan. On the other hand if you have a higher credit score then you will probably be able to access better interest rates off a wider range of lenders.
While your credit score is a large factor when applying for finance – it is not the only thing that determines your eligibility or interest rate. Lenders will also look at your personal expenses and capacity to repay the loan, employment status and length, and your residential status to determine whether or not they will lend money to you.
Try our Finance Score tool and find out where you sit.
To get a better understanding of where your credit score sits and what type of interest rate or
repayments you might be eligible for on a loan – Try our FREE Finance Score Tool.
In just 2 minutes you will be able to get an insight into your credit score and where you sit,
along with your eligibility for potential interest rates. The Finance Score tool is obligation free,
easy, and secure – and it won’t impact or affect your credit score for any future credit you may require. Just click HERE
Looking for Finance?
Nothing beats speaking to a Finance Expert to help guide you through the landscape. The team at FinanceBeagle have years of experience and access to over 30 lenders meaning we can help understand your situation and give you the best chance of getting approval and at the best rate available to you. Get in contact with the team now and better understand your options.
