After careful consideration, you decide a personal loan is the most logical way to go. After all, you had to sit through seemingly hundreds of finance ads during the Saturday night movie, so why not take them up on their offers? And everyone talks about how low interest rates are at the moment – maybe it’s time to take advantage?
There’s just one problem; none of the lenders will give you the time of day. And you can’t figure out why. Your income is solid. You may have missed the odd bill payment here and there, but that was all a long time ago. What’s the problem?
This is where your credit report comes into play. Banks, lenders, even utility providers and mobile phone companies rely on the information on these reports to determine whether any new debt you take on is serviceable.
“Serviceable”? Okay, now in English - the lender wants to see whether you have any outstanding debts, or have had trouble paying them, before they’ll let you take on any more. It’s the lender’s way of protecting themselves against payment defaults – by effectively refusing credit to those people who are most likely to miss their repayments.
The information on your credit report not only affects whether or not you can get a loan, it will also partly determine the amount you can borrow and your interest rate. So what kind of information is contained on these credit reports? And how important are they to your credit application, and your finances in general?
First off are the basics: your name, gender, date of birth, driver's licence number, addresses and employer information. Unless you’re sporting multiple identities, there’s nothing to worry about here.
Next, we get into is your past credit history: applications made in the past five years, overdue accounts, court judgements and court writs, directorship details, proprietorship details, plus any information on bankruptcy, debt agreement and personal insolvency. Even if you’ve had problems with defaults that you managed to fix up, the record stays on your credit report for four to seven years, depending on the severity of the credit infringement.
In addition, your report may contain commercial credit information if applicable, including applications for commercial credit and details of overdue commercial credit accounts.
Finally there’s what’s called “positive credit information”. This is a very recent introduction to credit reporting in Australia, and includes monthly repayment history on accounts such as mortgages and credit cards. Under these new credit rules, the lender can now see whether you usually pay your bills on time and whether you paid the minimum amount required. They can then use this information to make a decision on your application. Depending on your overall financial history, this could be your application’s saving grace or the final nail in its coffin.
The answer is, it depends. The sheer volume of financial information contained on your credit report may seem like a good general indication of how important it is. But what’s not always clear is how much weight an individual financial institution will attribute to your credit report when assessing your application. Some have stricter rules than others, so the likelihood of a single minor payment issue being overlooked varies depending on which institution you’re lodging your application with.
Here’s the cruel twist in the tale…any time you apply for credit, including for seemingly small amounts like phone contracts, a mark goes on your report. So even if you have a flawless payment history, too many applications in too short a space of time could raise red flags and may prevent you from obtaining finance. A good way to avoid this problem is to use a finance broker who can match you with the most suitable lender. This way, only one credit check is required – plus, someone else does all the hard work for you!
My history’s not great, so I’ve got no hope…right?
Not even slightly. Thankfully, there are plenty of financial institutions who can help people with a less than perfect credit history. Rapid Finance can find the best deal possible for you, regardless of what your credit report looks like. Call us 1300 467 274 and get pre-approval within ten minutes!