When you apply for a loan a lender will request a lot of different information. They will request information such as: evidence of your income, bank statements, rates notice etc. One piece of information that a lender will obtain themselves, using an independent source, is your credit file.
The contents of your credit file has a big impact on your ability to obtain finance. The information within this file will be used to generate your credit score. Generally, you will have a credit file if you have previously applied for a loan.
What is in your credit file?
Until recently, Australia had a negative credit reporting regime. However, we now have a comprehensive credit reporting regime. This means banks are required to provide a lot more information on your file. This information can affect your borrowing power. This is why managing your finances is so important. Below is a list of what is on your credit report:
- Credit inquiry information.
- Credit type you applied for.
- Credit amount applied for.
- Date you opened your credit accounts.
- Credit accounts types you opened.
- Date you closed your credit account.
- Maximum credit amount available for each account.
- New and previous credit amounts.
- Conditions related to your repayment.
- Credit providers names and if they have a credit license.
- Overdue consumer credit accounts details.
- Monthly repayments for the last two years.
- Default agreements details.
- Commercial credit applications.
- Overdue commercial credit account details.
Credit Score explained.
Your credit score is basically an automated assessment, providing a simple indiction of how great a risk you are of a borrower, in the form of a number between 0 and 1200. The higher the score the more competent you look as a borrower, while a lower score suggests that you are more likely to default. Of course, even if you have a high credit score there are options. A lender still takes into consideraton all of their usual lending criteria so it does not guarantee finance. Your credit score can be impacted by:
- How many loans you have applied for or obtained.
- If you have missed or made late repayments.
- If you have any defaults.
- If you have any bankruptcies.
- If you have any overdrawn accounts.
Can it be improved?
While the answer is yes, it will require time and patience to make a significant difference. Even so before applying for a home loan you should try to rectify any current issues. Being declined for finance will only worsen your score and further reduce your chances of being accepted. While there is no quick fix, you can start improving by:
- Not overdrawing your credit card.
- Not overdrawing your transaction or savings account.
- Making all your payments on time.
- Paying off any defaults. Not moving homes or job until after you have applied for your loan.
- Pay your loans as soon as possible.
As you can see, the importance of credit files should not be underestimated as part of the loan application process. But knowledge is power, so by understanding how they work you can prevent problems and fix any issues to put you in a better financial position.