Our sincere thanks to John Dickinson of Clean Credit Australia for penning this article for us. And Alpha Broker for providing the information.
DID YOU KNOW? The highest credit score possible is +1,200, whilst the lowest is -200
But exactly what does this mean? Do you know what your personal Credit Score is? Do you know how Credit Scoring Works?
For some months now Veda Advantage has been disclosing credit scores to consumers, information that was previously only available to lenders.
Here is a quick guide on how to interpret your Credit Score and the impact it is likely to have when applying for finance.
Other than a bankruptcy, the lowest credit score a person can have is -200 with the highest being +1,200. The higher the score the better, however the general rule we like to see people with a credit score of +600.
Having a credit score of +600 is not in itself a guarantee of approval but we see that most people with credit scores in that region are not experiencing difficulty securing credit.
That is not to say that people with a credit score below +600 will be unable to secure finance, however they will most likely have less choice and may find themselves paying higher interest rates and fees or having to contribute a higher deposit as a result.
Find out your credit score at www.getcreditscore.com.au
A credit score is a moving target and is subject to change due to a number of factors such as:
- Credit enquiries
- Change of address and employment
- Negative listings such as defaults, judgements and court actions
Let’s take a look at how lenders use a credit score to determine the risk profile of an applicant.
According to Veda Advantage a credit score of +200 represents odds of 1:1 which means the applicant has a 50% chance of having an adverse event on their credit file in the next 12 months.
For every additional 100 points the odds double, meaning the applicant has less chance of having an adverse event on their credit file.
So a credit score of +300 means the applicant has a 33% chance of having an adverse event on their credit file in the next 12 months. A score of +400 still shows a 20% chance. Whereas a score of +600 drops to a mere 6% chance.
With this understanding it’s clear why a borrower may experience difficulty in obtaining finance.
Credit scoring can be an effective tool for lenders to quickly determine risk. With the volumes of loan applications they receive every day, triggering their credit systems to react to a certain credit score is a quick way for them to process and approve or decline applications.
This broad brush approach can mean that many good people do not qualify for finance based solely on their credit score where in reality they might prove to be reliable and credit worthy.
For more information on credit scoring as well as the coming changes to credit reporting laws, go to www.cleancredit.com.au .
Clear as Mud??? If so, please CONTACT US on 0407 349 246 to arrange a FREE no obligation consultation with us to discuss further.
