Most lenders now credit score you when you apply for a loan- by Jenna Ford
How do the lenders credit score you?
And importantly, 6 ways you can improve your credit score and the chances of a “yes” to your next loan application?
Credit scoring is undertaken by lenders and now also from June 1 2011 by Veda Advantedge, one of the main companies supplying credit file information about you. Its purpose is to identify high and low risk customers for the organisations who are in the business of supplying credit and in doing so to help them make more informed credit decisions thus protect them from lending to customers whose loans may go into default and affect their profits. Veda Advantedge calls it “positive credit reporting” arguing that it is designed to protect vulnerable consumers from obtaining credit, but will it also disadvantage worthy borrowers?
Veda Advantedge has issued some interesting examples of the new Veda Score rankings that will come into being on June 1st. When a lender accesses your Credit Record they will now see, in addition to listed enquiries, defaults and judgments, a risk rating that will assist the lender in determining whether to lend to you or not. Knowing the activities that affect your credit risk rating may well enable you to change your behaviours so that your risk ranking is more attractive to a lender.
Here are their examples of 4 types of customers and how their credit behaviours affect their risk rating scores. You may well draw from them some salutary lessons about your own credit behaviours.
High scoring, low risk end of the rating is an applicant with a score of 857. This person gets a green go ahead light. They
- Rarely apply for credit and/or
- Are unlikely to have applied for unsecured credit products and/or
- Are unlikely to have made credit applications to multiple lenders and/or
- Do not have defaults or judgments in the last 5 years.
Medium, medium risk end of the rating is an applicant with a score of 641. This person:
- May have applied for credit at a moderate frequency and/or
- Is likely to have applied for a mix of credit products and/or
- Is less likely to have defaults or judgments in the last 5 years
Medium to low scoring, medium to high risk end of the rating is an applicant with a score of 439 and an orange warning light. This person:
- More likely to have applied numerous times for unsecured credit products and/or
- More likely to have applied for a mix of credit products and/or
- More likely to have made credit applications to multiple lenders and/or
- Likely to have defaults or judgments in the last 5 years.
Low scoring, high risk end of the rating is an applicant with a score of 196. This is a red stop light rating. This person is:
- More likely to have applied for credit numerous times and/or
- More likely to have applied for a number of unsecured credit products and/or
- More likely to have defaults or judgments in the last 5 years.
6 tips for improving your credit score and your chances of a “yes” when you apply for your next loan:
- Always keep service providers updated on your current mailing address when you move residence so that you do receive all invoices and know if there are monies to be paid.
- Never default, or not pay an invoice. If you disagree with an invoice you have been sent by a provider then immediately dispute it in writing to their accounts department and if there is no quick satisfaction there take the matter to their internal Complaints Officer. Delaying a formal resolution of a dispute will generally lead to the supplier listing you as in default and then future borrowing becomes hard and expensive.
- Monitor your credit cards, store cards and loans to ensure that they have no over limits noted on them and no late fees showing. Whilst over limits and late fees do not lead to a credit default directly, most lenders review the payment history on these statements in line by line detail and rate risk you poorly when these payment behaviours appear.
- Do not make multiple or frequent applications for credit. Do your research of lenders and credit providers well and apply only to your preferred choice of lender when you are sure that you will meet their credit criteria. This is a challenge where you do not have access to bank serviceability calculators and credit policy details. Using a broker who works with a wide range of lenders can assist you in locating a lender whose criteria you do satisfy rather than you needing to apply for finance on a trial and error basis. It pays to be reasonably certain you will achieve a “yes” from that lender before lodging an application to them. The next lender may not take you on if you have been refused elsewhere.
- Check your credit record regularly. You can obtain a copy of your file from Veda Advantedge. Log onto http://www.vedaadvantage.com/personal/au_index.dot>. You can also set up an alert system so that whenever your file is accessed you will receive an email notification. If an organisation is listing a default against you then you will be alerted that someone is accessing your file. It pays to be informed and aware. No hidden surprises!
Disclaimer: This information has been prepared as a general guideline, and is not intended to be an exhaustive or a complete analysis of the topics in question or issues raised in this article. There are many particular legal, taxation and accounting matters which have not been dealt with in this article and readers are urged to discuss any aspect of the operation of any of these matters discussed herein with their professional advisers. In particular asset protection, estate planning and superannuation are potentially a very litigious areas of law and you will need specific advice before you take any actions if you want your wishes complied with. Before taking any action or implementing any strategy you should seek professional advice from your lawyer, accountant and or financial planner who will take into account your specific circumstances and objectives.