Your credit score plays a vital role in determining whether you qualify for a loan, and lenders use it as a key factor in assessing your financial health. Here, we’ll break down how your credit score is calculated, what a good credit score looks like, and steps you can take to improve it.
How is My Credit Score Calculated?
A lender evaluates your credit score using two main sources:
- Credit File: Your credit file contains data from various credit providers, analyzed using the Equifax Credit Score model. This model predicts the level of risk a lender might face in lending you money.
- Lender’s Assessment: Each lender uses their own method to determine if you meet their criteria. They analyze your income, assets, living expenses, and outstanding debts alongside your credit score.
While lenders won’t disclose their internal score, you can access your Equifax score, which ranges from 0 to 1200. Scores above 700 are generally considered ‘good’ and indicate a lower credit risk.
What Information is Included in My Credit File?
Your credit file contains a variety of details provided by credit providers and public records, including:
- Personal Information: Identifying details about you.
- Repayment History: Data on credit cards, loans, and mortgages.
- Credit Types: The types of credit you currently have.
- Credit Enquiries: Records of applications you’ve made in the past 12 months.
- Default Information: Any overdue debts or defaults.
When you check your credit score, you’ll also get insights into factors impacting your rating, which can help you make adjustments to improve your score over time.
How to Check Your Credit Score for Free
In Australia, you can request a free credit report once a year through these Credit Reporting Bodies (CRBs):
- Equifax (formerly Veda)
- Dun & Bradstreet (D&B)
- Get Credit Score
Requesting your credit file doesn’t impact your score, and it’s a good idea to review your report annually to ensure accuracy and guard against identity fraud.
Tips to Improve Your Credit Score
Improving your credit score takes time and sound financial habits. Here are some tips:
- Pay Bills on Time: Timely payments are crucial to maintaining a good score.
- Clear Outstanding Debts: Settle any defaults as soon as possible.
- Limit Credit Applications: Avoid applying for credit unless you truly need it.
- Choose Reputable Lenders: Applying for credit with trustworthy lenders helps signal financial stability.
By managing your finances responsibly before applying for credit, you increase your chances of approval and a favorable credit score.
How Lenders Calculate Your Credit Score
While your credit score remains consistent across applications, lenders may assess your score differently. They use information from your credit file combined with details you provide in your application, such as income and expenses. Because each lender has unique assessment criteria, some may view your score more favorably than others.
What Credit Score Results Might You Get?
Lenders assess your credit score and issue one of three possible outcomes:
- Pass: Your credit score meets their criteria, likely leading to loan approval.
- Decline: Your score doesn’t meet the minimum requirements, resulting in an immediate rejection.
- Refer: Your application needs further review due to incomplete information or borderline credit standing. In this case, a credit manager will review your application manually, giving you a second chance at approval.
Next Steps to Secure a Home Loan
If you’re ready to explore your borrowing options:
- Calculate Your Borrowing Power: Use our online calculator to see what you may be able to borrow.
- Speak with a Mortgage Broker: UNO’s expert mortgage brokers can help you navigate the loan process.
- Book a Call with Our Team: Reach out to our customer care team to discuss your options.
This information is general and doesn’t replace professional financial advice. Always consult with a licensed expert when making financial decisions. Book a call with UNO to start your home loan journey today.
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