A credit score becomes a very important factor when seeking credit. Although Australians are becoming more aware of their credit profile, a credit rating or credit scale is still not common knowledge throughout the majority of the country. Banks use a credit bureau such as Veda to assess whether you are viable for a particular line of credit. This score is based on the information within your credit file or credit report. Each Australian is entitled to one free credit report every 12 months which can be obtained online from a credit bureau or agency.
You will have a credit file if you have applied for any of the following:
- Credit cards
- Loans, such as a short-term or personal loan
- Mobile phone or internet plan
- Utility accounts with payment terms of at least 7 days
- Interest-free store loans
- Store cards
Banks, mortgage insurers and mobile phone companies are just some examples of the many credit providers out there who may run a credit check. They will do this when you apply for a form of credit, which can come as a bit of a surprise to most of us. Their decision whether to accept your application depends on the credit provider’s specific guidelines and eligibility criteria. Your file can contain a record of overdue debts, bankruptcy and court judgements. Should you be rejected when applying for a credit card, or if a bank refuses your application for a mortgage, it might be because you have an overdue balance somewhere to settle.
In particular, there are 5 aspects which a lender will pay most attention to:
The payment history element of your score helps lenders assess whether you’re a responsible borrower who’ll make payments on time. This aspect will cover the factors such as:
- Payments made on time from each account
- Records of late payments – have you made any late payments and if you have, how late were you in paying…weeks, months? The longer you leave an outstanding debt the lower your score will be
- Record of any foreclosures or debt settlements.
Forms of credit
Remember that not all lines of credit are liabilities because many forms of credit can help you build assets. As an example, a regularly used credit card which is paid off each month will do wonders for your credit score and a home loan is a good debt because it increases your worth. Most forms of personal credit are tagged as standard payables and therefore won’t earn revenue for you.
Credit providers will look into the how long you’ve had the account. A long and withstanding account is healthy on the basis it’s not marked with a series of late payments over the past 6 – 12 months. Accounts that have only been open for a while are deemed as OK, specifically if you’ve managed to keep up-to-date on all of your repayments.
Lenders will pay attention to the amount borrowed and owed in total. This is because they are trying to determine if you are creditworthy and likely to default. If you’ve been paying off your debts on time and efficiently, then you are likely to be viewed as responsible and fit to make the repayments on time. Reviewers also like to see the variety of credit types that have been used.
The number of new accounts that you have applied for and opened can be a decidable factor. If you have a series of multiple accounts opened, they may look at this as you having possible cash flow issues, which constitutes a risk factor. Although, your new credits won’t go against your score if you can demonstrate that you are capable of handling your regular payments.