When you apply for any type of credit, be it a mobile phone contract, credit card, personal loan or home loan, your application will be given a “credit score.”
This score is the credit provider’s automated assessment of how risky your application is to them.
Your application is instantly assessed by a computer with no common sense or reasoning.
For this reason people who have been declined for a loan simply because their credit score was low often feel like they haven’t been given a fair go.
What are the possible results?
There are three possible results that the lender’s system can give when your application has been scored:
- Pass: If you pass the credit score, assuming you meet all other aspects of the bank’s policy, then your home loan will be approved.
- Fail / Declined: If you have failed the credit score then your mortgage application will be declined immediately. More often than not, bank staff are unable to override the system’s decision.
- Refer: If the system cannot accurately score your application, there are errors with the data or it is on the borderline between pass and fail, then your application may be referred to a credit manager for a full assessment.
Have you had trouble with a low credit score? Please call us on 1300 889 743 or enquire online and one of our mortgage brokers will let you know which lenders can help.
What is my credit score?
You can never know what your credit score with a particular bank is. All you will know is the pass or fail result.
However, you can use our credit score calculator to work out if your score is likely to be high or low.
It can even let you know which aspects of your situation are likely to be a problem for the banks.
Every lender is different
The Australian system gives borrowers an opportunity that is not available to people in the USA or UK who have a low credit score.
Each lender has their own method of calculating your credit score and their own guidelines, therefore it’s possible to get approved with some lenders even if you had a low score with your bank.
In fact, some mortgage lenders do not use credit scoring in their assessment.
Credit score, not credit history
There is a common misconception that your credit score and your credit history are the same thing. This is somewhat true overseas, however, is not true in Australia.
In Australia, your credit history is stored with credit reporting agency Equifax (previously Veda Advantage) and, in addition to this, each bank has an internal credit history for you based on the conduct of any accounts you have held with them.
Your Equifax credit file is available to all credit providers and lenders. They request a copy of your file whenever you apply for a loan.
Your credit file will show which other companies have accessed your file (which loans you have applied for) as well as any defaults, court judgments or bankruptcy issues that may be present.
Banks will use your Equifax file along with their own internal records and the details of your application to then create your credit score.
In other words, your credit file is just one of the aspects of your situation that is taken into account to create your credit score. You can read our page on how your credit score is calculated for more information.
Actually, you have two scores…
Firstly, you have your credit score with Equifax.
This is known as your Equifax Score (previously VedaScore) and it is based on the information in your credit file.
Secondly, you have a credit score with the credit provider you have applied with. This is their own score based on your credit file and all of the information in your application.
The Australian system is unique!
In the United States, there are country-wide credit reporting agencies which generate a score based on your credit history.
The most commonly used system is known as the FICO score (similar to our Equifax Score). A FICO score is between 300 and 850, the higher the score the better.
A low credit score in the US will almost certainly result in you being unable to borrow money, or to be only able to access money through expensive specialist lenders.
The FICO score is calculated based on the following:
- The repayment history of your existing debts.
- How much of your credit card / overdraft limits that you have used.
- Length of credit history.
- The types of credit you have.
- The number of times you have applied for a loan recently.
The critical difference between the USA system and the Australian system is that in the US you have the same score with every lender, whereas in Australia each lender generates their own credit score!
Have you failed a bank’s credit score?
Our staff are professional mortgage brokers who have an in depth understanding of how the banks credit scoring systems work.
If you have applied for a home loan and have been declined because of your credit score, then please enquire online or give us a call on 1300 889 743 and we’ll help you to get approved with another lender.