Veda Advantage, the main credit reporting agency in Australia, is rolling out their VedaScore as part of all credit reports ordered by lenders and authorised agents such as mortgage brokers. This change will mean that mortgage brokers will have an accurate credit score for customers before they submit a home loan application.
It also means that people with adverse credit will be able to see how they stack up statistically, in other words they can see how they will look to the banks. This will also be important for professional investors who may be concerned about the number of enquiries on their credit file, which is known to reduce their credit score.
If you have a poor VedaScore will it mean that your home loan will be declined? Not necessarily, most lenders take a more comprehensive view of your application and will use the same data from Veda Advantage to generate their own credit score. The reason that they do this is that VedaScore is based entirely on the information in your credit file, whereas the lender will also need to take the overall risk of your situation into account including your LVR, loan amount, property location, security type, employment stability and serviceability.
The lender’s own score is specific to your application whereas VedaScore is a general assessment of your risk for any loan you apply for. For this reason it is likely that the lender’s credit score is a more accurate measure of risk than the VedaScore on it’s own, and so lenders will use their own score not the VedaScore on it’s own.
The new format credit reports will also include a statistical risk that the customer will have an adverse event listed in their credit file in the future. In other words, the risk that they will have a default, judgement, court writ, bankruptcy or part IX listed on their credit file.
This risk is listed as their odds e.g. 12.2:1 and is compared with the Veda sub population’s risk e.g. 11.9:1. The higher this ratio is the lower the risk that this customer poses to a lender. We have seen applications from customers with a risk of 2:1 which means a 50% chance that they will have trouble in the future! In these cases we discuss this issue with the customer and help them understand how they can change their behaviour to reduce their risk of financial hardship.
For more information on credit scoring please use our credit score calculator and read the information at the underneath the calculator. This calculator can take a comprehensive view of your situation into account and include some information from your credit file as well as the information used by the banks themselves. It is specific to home loans or mortgages, however the same concepts are used when assessing unsecured finance such as personal loans, credit cards or car loans.