A Credit Score is a number calculated from the data on your credit report and is one factor used by lenders to determine your credit-worthiness for a mortgage, loan or credit card. The score compares you as a borrower, to the rest of the borrowers in Australia. Your credit score and credit report – are held by credit bureaus, such as Veda. Most lenders refer to Veda when checking your credit.
The credit score model involves a critical analysis of credit history across thousands of loan applications to determine what makes some borrowers more-risky propositions than others. Defaults, the number of credit enquiries on file, and the borrowers ‘credit shopping’ pattern are some of the pointers that can be used to derive a score. The score can be plotted on a chart or scale to provide a clear picture of whether the score indicates high or low risk. This means that defaulting on loan repayments could affect a borrower’s chances of securing a loan.
The national average credit score is around 760 which means that most Australians fall into the “very good” category when paying their loans.
The Veda credit score categories are below;
- 833-1200 EXCELLENT You’re in the top 20% of Veda’s credit-active population, suggesting it’s HIGHLY UNLIKELY that an adverse event could harm your credit report in the next 12 months. Your odds of keeping a clean file are 5 times better than Veda’s average population.
- 726-832 VERY GOOD Your Veda Score suggests it’s UNLIKELY that you will incur an adverse event in the next 12 months that could harm your credit report. Your odds of keeping a clean credit report are 2 times better than Veda’s average credit-active population.
- 622-725 GOOD Your Veda Score suggests it’s LESS LIKELY you will incur an adverse event that could harm your credit report in the next 12 months. Your odds of keeping a clean credit report over this period are better than Veda’s average credit-active population.
- 510-621 AVERAGE If your Veda Score is between 510 to 621, your credit score range is Average. Your Veda Score would suggest it’s LIKELY that you will incur an adverse event such as a default, bankruptcy or court judgment in the next 12 months.
- 0-509 BELOW AVERAGE If your credit score is Below Average, you’re in the bottom 20% of Veda’s credit-active population, suggesting it’s MORE LIKELY that you will incur an adverse event such as a default, bankruptcy or court judgment in the next 12 months.
Credit scoring isn’t the only tool lenders use when assessing loan applications. They may also use their own credit application score and other criteria to decide if an applicant is suitable for a loan. That been said as technology advances some companies particularly those offering personal loans are approving loans based on a customer’s credit score and 3-month bank statement.
One of the BIGGEST MISTAKES you can make is shopping around for credit. Every time you apply for credit and a credit provider obtains a copy of your report, an enquiry is added to your credit report. This includes any loan; mortgage or utilities applications you may make. Credit providers may take a negative view of a relatively high number of enquiries made in a short space of time, which may in turn affect your ability to obtain credit.
Use a mortgage broker to do the leg work for you. A mortgage broker has the ability to make enquiries with lenders without enquiries noted your credit report and affecting your credit score.
If you want to get a copy of your credit score, Google “credit score Australia” – a good number of companies offer it for free if you sign up on their mailing list.
I would also encourage everyone to get a free copy of their credit report to see what has been recorded on you – http://www.mycreditfile.com.au/products-services/my-credit-file
Happy investing!