Many factors can affect the approval of your fixed rate loan application, or any kind of loan application. One of the biggest factors is your credit score. Here in Australia, many lenders view credit scores as a reliable gauge in deciding whether or not to approve the loan.
Not all lenders in Australia put as much premium to credit scores, but it does help strike a good impression when trying to apply for a loan. In this article, we will give you a quick glimpse into what a credit score is and how it can affect your application. Read on.
What is a Credit Score?
Credit Scores have long been used as a basis for an applicant’s creditworthiness. This directly affects how much you pay for any lines of credit you take out. The scores range from 0 -1,200 (depending on the credit bureau that is calculating it). As to how scores generally work, the higher the numbers, the better your credit standing is.
There are three major credit bureaus in Australia namely Ilion, Equifax, and Experian. We have the following table to help you visualise credit scores and their corresponding ranges.
|Credit Score Range||Ilion||Equifax||Experian|
Perfect credit scores are excellent indicators of positive credit actions, but this is understandably very difficult to attain. Only 3.5% of all Australians have a perfect credit score. Most Aussies fall on the ranges of Very Good, Average, and Fair.
How is it calculated?
The three major credit bureaus in Australia have their method for calculating credit scores. Your score is heavily based on your credit conduct, which is a summary of your current and past financial transactions. In general, they base it on five main factors: payment history, the total amount owed, length of credit history, types of loans, and new loans.
Payment history is perhaps the biggest contributing factor to how high or low your credit score will be. If you pay your obligations on time, then your payment history will be deemed favourable. Longer credit histories are also more useful to the lending agencies since they have more data to base your credit from. The types of loans you have previously availed of and the ones that you are currently applying for are also taken into account.
Moreover, you might think that not having a credit card can get you off the hook. In contrary, having no credit card can actually affect your credit score negatively as the credit bureaus will have nothing to base their calculations on.
How can it affect a loan application?
Credit scores can affect your loan application in the following aspects:
Loan Application Approval
Low credit scores can be interpreted as risky by the lending company that you are intending to borrow from. The speed of approval might even be slower as compared to the ones with high credit scores. Lenders are keen on an applicant’s ability to pay. Low credit scores can be a red flag which is why they need more time to investigate.
Unfortunately, quick personal loans are not the only issue. In the case of some lenders, your application might not even be approved at all. Even if you have a steady income, no outstanding debt, and enough collateral to back you up, some lending companies would still deny your application if your credit score is too low.
This is why choosing a lending company to borrow money from also matters. When applying for a loan, you also have to choose a lender who gives reasonable and fair loan terms.
Another thing that can be directly affected by your credit score is the interest rate. Banks and other lending agencies typically grant lower interest rates and even offer fixed rate loans to applicants with high credit scores. On the other hand, applicants with less than ideal credit scores are given high interest rates.
Access to Certain Deals
Credit scores can also hamper your chances of accessing certain deals. For instance, you might be aiming for a premium mortgage loan that allows for better financing. Due to your low credit score, you might have to settle for standard deals instead of premium deals. The same is true when you apply for auto loan, leisure loans, etc.
Stricter Adherence to Underwriting
Another challenge with low credit score encourages the lender to be stricter when it comes to complying with other requirements of the application. These are things like income, down payment, cash reserves, and so on.
For example, if you have a wearisome employment history, having a good credit score might shift the lender’s decision to your favour. While low scores can even amplify the need to compensate in other areas. Requirements will vary from one lender to another, so this is another challenge that you might face.
An applicant’s credit score plays a key role in a lender’s decision to offer a loan. There are ways to increase your credit score like consistently paying your bills on time, increasing your credit line, working with credit repair companies, and so on. Although credit score is still important in loan application and processing, some agencies do not put as much premium in it anymore. These are agencies like Nu-Age Loans that aim to source reasonable and fair rates to all applicants regardless of their credit history.
Don’t let credit scores hold you back. Find a reliable lender today.
Credit scores give lenders a good picture of the risks they are taking by granting loans. The higher the score, the lower the risk, at least in the traditional sense. However, more banks and lending agencies are realising other more important factors hold weight in loan applications.
Here at Nu-Age Loans, we believe in looking at the bigger picture. We consider other factors alongside your existing credit score in determining your loan application status for any loans. Whether you want a fixed rate loan and car loans in Perth or home loans in Perth, we can find a solution for you. Learn more about how we can help you today.