A credit score is a means by which a lender or any other entity’s who is dealing with you for credit purposes can ascertain your management of credit. This enables them to make a decision as to whether you are a suitable candidate to enter into a credit contract with. Your credit history is stored in a credit file which can often be accessed by you.
Among the factors that determine a credit score:
No record is a risk.
The lack of any previous credit contracts present a risk. If you have not had a credit contract before the credit assessor does not have any evidence on how you handle credit. This raises your risk profile when applying for credit the same way a new driver would have a higher insurance risk rating.
Length of Credit Management.
It follows from above then that the longer you have credit the more favourably a credit assessor views this provided you have not had a default at payment at anytime. The most usual evidence of this is the gradual repayment of a home loan although car loan repayment or a mid term (2-4 year) credit card repayment also qualifies. The longer the repayment over time the better.
Generally the repayment needs to have occurred via the minumum discrete amount periodically. So paying the loan with extra repayments for six months then defaulting for a month would not go down well in your file.
Having multiple contracts.
Having multiple different kinds of credit contracts (e.g. home loan, credit cards) is better than having one contract. Again there must not be any default, the total contracts repayments must not exceed your capacity to pay and it helps if you show you can pay off some of the contracts completely.
Lack of defaults.
Generally a default will not be recorded in the credit contract unless it goes to a collector. Collector defaults are recorded in the credit contract for 7 years. It is prudent not to let a default get to the point of collection.
What does this mean for you when applying for a home loan? It means do not apply for a pre approval unless you are ready to purchase. Applying for multiple pre approvals may seem like you have been denied credit and may reduce your credit score.
To access your credit file go to
The information given above is of a general nature and does not intend to replace professional advice. If you have any questions about above or about your credit needs specifically please contact us on the number given below.
Objective Financial Solutions Pty Ltd ATF Mahadeva Family Trust. Credit Representative number: 474831 Licensee of Connective Credit Services. Australian Credit License: 389328 email: firstname.lastname@example.org website: www.objectivefinancialsolutions.com.au Phone: 0413788582