What is my credit rating?
Your credit rating is the category a lender places you based on your credit score. Depending on the rating you’re given, the lender views your loan application in different ways.
CBA, for example, has a five tier credit scoring system:
- If you’re given a credit rating of 1 or 2 then you’re considered to be a great customer.
- If you’re rated as a 3, your loan will be assessed normally, based on its merits.
- If your loan is rated to be a 4 or 5 then it’s very likely that your loan will be declined.
Other major banks such as Westpac, St George, NAB, ANZ and BankWest have their own credit rating built into their loan assessment system.
As a result, it’s quite possible that you could pass with one lender but fail with another.
How do I know my rating?
Your credit rating 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 rating. For this reason, each lender will view the risk of your application in different ways.
You can use our credit score calculator to find out how the banks are likely to rate your application.
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 call us on 1300 889 743 or fill in our free assessment form for more information.
Can I get a home loan with a bad credit rating?
Yes! It’s 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:
- First, we look to see if we can find a prime lender such as a major bank that would rate you favourably.
- Second, we’ll look for non-conforming lenders or specialist lenders that can consider your application.
- We’ll then compare the loans available from them and come back to you with two or three more competitive mortgages.
We’ll only help you if you’ll benefit from refinancing or purchasing. We’re not in the business of giving people loans that they can’t afford or don’t need.
If you’d like the help of one of our mortgage brokers then please call us on 1300 889 743 or fill in our free assessment form.
What information is used to calculate my credit rating?
When the lenders calculate your credit score, they take a lot of factors into consideration so that an accurate credit rating is given for your situation.
The information that the banks assess when determining your credit rating includes:
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’m 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 – low risk
- >2 years- negligible risk
How long have you been in your job?
- I’m on probation – medium high risk
- >6 months but <2 years – low risk
- >2 years – negligible risk
How are you employed?
- I’m self employed for more than 2 yrs – low 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 enquiries are on your credit file in the last 6 months (how many loans have you applied for)?
- 6 or more – extreme risk
- 4 or 5 – high high risk
- 3 or 4 – medium risk
- 2 or less – negligible risk
- I’m bankrupt – declined
- I’m 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’ve been paid – very high risk
- My credit history is clear! – negligible risk
Have you missed payments on your current debts?
- Yes, but it was more than 6 months ago – medium 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% – negligible risk
- Between 60% and 80% – low 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 not included)?
- I have more than 10% of the purchase price in savings – negligible risk
- I have more than 5% of the purchase price in savings – low risk
- I have 3% of the purchase price in savings – medium risk
- I have no savings – 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
- >$25,000 – low risk
- $0 to $25,000 – medium risk
- I own nothing! – medium high risk
- I own nothing and I’m on an income over $100,000 – very high risk
- My liabilities are more than my assets – declined
Does Equifax give me a credit rating?
Equifax (which acquired Veda Advantage) holds a credit file for all Australians who’ve applied for any form of credit.
In the past, Veda didn’t have any score on your credit file. They merely provided to lenders a list of loans you’ve applied for along with black marks such as defaults.
Nowadays, Equifax has their own score on your credit file, known as your Equifax Score (previously VedaScore).
It’s the lender that then uses this information to give your loan a credit rating, which is used to categorise you as a good or bad borrower.
What if I have no credit rating?
People who’ve 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’ve never had a loan before so you represent a higher risk.
They may decide that you should prove yourself with a small commitment such as a credit card before they’ll approve a home loan for you. Once you have a 6 month credit history then you’re often easily able to borrow with most lenders.
We have access to lenders that can lend to people with no credit history, please call us on 1300 889 743 or fill in our free assessment form 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’s better to have one or two credit cards that are paid on time then to have too many debts as you’ll be seen as someone that can’t control their spending.
In the past, if 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’ve never had any history with.
However, as of 2014 all lenders have access to this information via your credit file with Equifax, even if you’ve never had a loan with them.
Just as you wouldn’t lend money to people you don’t 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.
The information about how you use your bank account is combined with the information on your credit file to create your credit rating for your loan application.
How can I find out my personal credit rating?
If you ask your bank to check your credit rating then they can often tell you if their system has given you a good or bad rating based on the way you’ve used your cheque account.
You can write to Equifax directly and they can give you a free copy of your credit file. The best way to work out if you’d be seen as a high risk for a home loan is to use our credit score calculator.
What is failing a lenders credit rating?
In some cases, when someone applies for a mortgage the lender will reply that they’ve failed the lender’s credit rating.
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 will rate your application? If you’ve been declined for no apparent reason then we can often apply with a lender that 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’ve 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 complete our free assessment form or call us at 1300 889 743 and one of our mortgage brokers will contact you to discuss how we can help you to apply for a home loan.