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I don’t have a good credit score; can I still get a loan?

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Every Australian who has accessed credit in their lifetime will have a credit score, which is usually relied upon by lenders when assessing their eligibility to be approved for a loan. So, if you are someone who does not have a good credit score, what can you do about it, and are there any lenders that will approve you for a loan? Read on to find out.

What is a credit score?

A credit score is a number out of 1,000 that provides a high level overview of your credit history including credit enquiries, repayments and open credit accounts.

What does each score indicate?

Generally speaking, a high score (800 – 1,000) indicates that you are an exemplary borrower who always pays their bills in full and on time and that it is highly unlikely you will miss a repayment.

A score between 650 and 799 indicates that you have a fairly good credit history but that you may have a default on your file (even if the account has since been paid off), that your repayment history isn’t 100% or that you have made a number of credit inquiries in a relatively short period of time. It isn’t necessarily a bad score, but some traditional lenders like the Big 4 banks may not view you as the most ideal candidate or may only offer you a limited number of products, usually with higher interest rates and fees attached.

A score lower than 650 typically indicates a poor credit history. A person with a score in this range will find it difficult to be approved for a loan with a traditional lender unless they have a guarantor or an asset to secure the loan against.

Are there circumstances in which my credit score won’t be factored into my loan application?

Although your credit history is usually a very important part of being approved for a loan, there are some non-bank lenders who will overlook a poor credit score if you have a deposit of more than 20%.

These lenders take into consideration you may have endured a period of financial hardship that has affected your credit rating, but that you have made an attempt to turn your finances around and have been able to come up with a large deposit.

From a lender’s perspective, the higher the deposit, the less risk they have to bear. So, if you have had a default on a credit card or personal loan in your history you may still be eligible for a home loan if you can prove in more recent times that you take your financial security seriously and have rectified any missed payments, continued to pay your bills on time and have saved a significant deposit. These elements combined will prove to the lender that you are a viable borrower who they can trust to make loan repayments.

How can I improve my credit score?

If you have checked your score and it seems low, you can request a free copy of your credit report once a year and this report will offer you a breakdown of anywhere your conduct may be hurting your score. Over time the enquiries and old, closed accounts on your report will drop off, but if there are any records that do not seem accurate, you should investigate them as they could indicate fraudulent activity or a mistake on the part of the credit provider. If everything is in order but you are not happy with your credit score, the best way forward is to continue to pay your bills in a timely manner. Eventually, it will increase as historical records are removed and your percentage of repayments made on time increases.

To discuss your credit score and the impact it may have on your lending capacity, please contact one of our mortgage brokers on (07) 4052 0751.

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By Lauren Eakins

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