Credit Rating Mortgage
What is my credit rating?
Your credit rating is the category a lender places you into based on your credit score. Depending on the rating you are given the lender views your loan application in different ways.
CBA for example has a 5 tier credit scoring system:
- If you are given a credit rating of 1 or 2 then you are considered to be a highly desirable customer and the bank will do everything they can to approve your loan. They will often make many exceptions to their policy to help you.
- If you are in 3, your loan will be assessed normally, based on its merits.
- If your loan is rated to be a 4 or 5 then more than likely your loan will be declined unless there is a very good reason to mitigate the higher risk to the bank.
The other major banks such as Westpac, St George, NAB, ANZ & BankWest have their own credit scoring built into their loan assessment system. As a result it is quite possible that you could pass with one lender, and fail with another.
What is my credit score?
Your credit score is a lender’s automatic calculation of the risk of your loan application based on your credit history, employment, stability, income and security for your loan.
The banks have their own formula for calculating a credit score, for this reason each lender will view the risk of your application in different ways. Lenders do not publish the method they use to calculate a credit score as otherwise people would be able to work out ways around it!
We have worked out which lenders see which aspects of an application to be a high risk and can work out who can approve your loan, please enquire online for more information. Or alternatively, find out what your indicative credit score is using our free credit score calculator.
Can I get a home loan with a bad credit rating?
Yes it is possible to get a home loan with a bad credit rating or bad credit score. Traditional lenders such as the banks are unlikely to consider your application, even if you have a good reason for the blemishes on your credit file.
We use a unique approach to find the most suitable lender for your situation:
- Firstly we look to see if we can find a prime lender such as a major bank that would not assess you as having a problem with your credit rating.
- If we can’t get your loan with a major lender then we will look for non-conforming lenders or specialist lenders that can consider your application.
- Once we know which lenders can help we will then compare the loans available from them and come back to you with the 2 or 3 more competitive mortgages.
- We will only help you if you will benefit from refinancing or purchasing. We are not in the business of giving people loans that they cannot afford or do not need.
If you would like the help of one of our mortgage brokers then please enquire online.
What information is used to calculate my credit score?
When the lenders calculate your credit score, they take a lot of factors into consideration so that an accurate credit score is given for your situation.
The information that the banks assess when determining your credit score include:
What are you using the loan for?
- To buy a home - negligible risk
- To buy an investment property - low risk
- To refinance a home - low risk
- To consolidate debt - medium high risk
- To help fund your business - medium risk
Are you applying for a loan on your own?
- Yes - low risk
- No, I am applying for a loan with my partner - negligible risk
How long have you lived in your current address?
- <6 months - high risk
- >6 months but <2 years - negligible risk
- >2 years - negligible risk
How long have you been in your job?
- I’m on probation - medium high risk
- <6 months - low risk
- >6 months but <2 years - negligible risk
- >2 years - negligible risk
How are you employed?
- I’m self employed for more than 2 yrs - negligible risk
- I’m self employed for less than 2 yrs - medium high risk
- I’m permanent full time or part time - negligible risk
- I’m casual - medium risk
- I’m a contractor - medium high risk
- I’m employed by an agency - medium high risk
How many credit enquiries are on your credit file in the last 6 months (how many loans have you applied for)?
- 6 or more - extreme risk
- More than 2 but less than 6 - medium high risk
- 2 or less - negligible risk
Do you have any credit problems such as judgments or defaults?
- I am bankrupt - declined
- I am a discharged bankrupt - declined
- I have more than 2 defaults OR my defaults are over $1,000 in total OR my defaults are not yet paid - declined
- I have 2 or less defaults AND my defaults total to less than $1,000 AND they have been paid - very high risk
- My credit history is clear!
Have you missed payments on your current debts?
- Yes however it was more than 6 months ago - negligible risk
- Yes within the last six months - very high risk
- No I never miss repayments - negligible risk
How much are you borrowing?
- $0 to $300,000 - negligible risk
- $300,001 to $500,000 - low risk
- $500,001 to $750,000 - medium risk
- $750,001 to $1,000,000 - medium high risk
- >$1,000,000 - very high risk
What percentage of the property value (LVR) are you borrowing?
- Less than 60% - low risk
- Between 60% and 80% - negligible risk
- 80.1% to 85% - medium risk
- 85.1% to 90% - medium high risk
- 90.1% to 95% - very high risk
- 95% + - extreme risk
Do you have any genuine savings or shares (gifts are not included)?
- I have more than 10% of the purchase price in savings - low risk
- I have more than 5% of the purchase price in savings - negligible risk
- I have 3% of the purchase price in savings - low risk
- I have no savings - medium high risk
- I have equity in an existing property - negligible risk
What is your net asset position (assets minus liabilities) like?
- >$1,000,000 - negligible risk
- >$100,000 - negligible risk
- >$50,000 - negligible risk
- >$25,000 - low risk
- $0 to $25,000 - medium risk
- I own nothing! - medium high risk
- I own nothing and I am on an income over $50,000 - very high risk
- My liabilities are more than my assets - declined
Does Veda Advantage give me a credit rating?
Veda Advantage (formerly known as Baycorp Advantage) is what is known as a credit rating agency. That being said, Veda does not give a rating to your credit file. They merely provide to lenders a list of enquiries on your credit file along with black marks such as defaults.
It is the lender that then uses this information to give your loan a credit score which is used to categorise you into a credit rating.
What if I have no credit rating?
People who have never had a credit facility such as a credit card, home loan, car loan or mobile phone contract are “untested” in the eyes of lenders. Their attitude is that you have never had a loan before so represent a higher risk.
They may decide that you should prove yourself with a small commitment such as a credit card before they will approve a home loan for you. Once you have a 6 month credit history then you are often easily able to borrow with most lenders.
We have access to lenders that can lend to people with no credit history, please enquire online for more information.
Does making payments on time improve my rating?
Yes! If you have many years of experience in borrowing and repaying loans then lenders are more likely to trust you with future commitments.
Beware of being labelled a “credit junkie”, it is better to have one or two credit cards that are paid on time then to have too many debts as you will be seen as someone that cannot control their spending which will downgrade your credit rating.
If for example you have a track record of perfect payments on a car loan with Westpac then generally Westpac would give you a higher credit rating than a bank such as ANZ or NAB that you have never had any history with. That is because to these other banks you are a stranger! Just as you would not lend money to people you do not know, banks are more wary in lending to people that they have no positive dealings with in the past.
Will having an open bank account improve my credit rating?
Yes, if you have a bank account open with a lender then this will give you a credit rating with that lender. To get the best possible rating your account must:
- Never be overdrawn.
- Always have a healthy balance (i.e. not running out of money prior to pay day).
- Few ATM withdrawals from pubs and clubs.
- Be open for at least 6 months.
- Generally have an increasing balance or a savings account with a gradually increasing balance.
The information about how you use your bank account is combined with the information on your credit file to create your credit score which determines your credit rating.
At present the provider of credit files in Australia, Veda Advantage, only has information on the loans you have applied for and any defaults or adverse events that have occurred. For this reason any “positive” information such as paying a loan on time for three years, is only held by the lender that you have that account with. It is not shared with other lenders, or taken into account when they calculate your credit score.
How can I find out my personal credit rating?
If you ask your bank to check your credit rating they can often tell you if their system has given you a good or bad rating based on the way you have used your cheque account. If you have applied for a loan with the bank then they may be able to give you a free copy of your credit file from Veda Advantage as well.
You can write to Veda Advantage directly and they can give you a free copy of your credit file. The best way to work out if you would be seen as a high risk for a home loan is to use our credit score calculator.
What is failing a lenders credit score?
In some cases when someone applies for a mortgage the lender will reply that they have failed the lender’s credit score. This means that the overall risk of your application has been assessed by their computer system and has been deemed to be too high.
Did you know that not every lender credit scores? If you have been declined for no apparent reason then we can often apply with a lender that does not credit score, but instead uses a common sense approach to loan assessment. Of course if you aren’t credit worthy then you can’t get a loan, however if you feel that you should have been approved then consider talking to us.
Apply for a home loan
Our mortgage brokers are specialists in the credit scoring algorithms used by the major banks. Please enquire online and one of our mortgage brokers will contact you to discuss how we can help you to apply for a home loan.