How does my credit score affect a personal loan?

Life happens. Sometimes unexpected emergencies arise that put us in a tricky financial situation. Or perhaps you’re still tainted by a credit debt from years ago. No matter how you got there, it’s worth understanding how a low credit score can affect your personal loan application. 

Your credit score has a huge say in whether you’ll be approved for a personal loan and how much you’ll be able to borrow. It also impacts the interest rate you’ll be offered and other loan features. 

Your credit score is a number that sums up the information on your credit report. Your credit score tells the lender whether or not you are a trustworthy borrower and whether loaning you money is worth the risk. 

In a nutshell, your credit score helps lenders decide whether you’ll be approved for a personal loan, how much money they’re willing to lend you and what interest rate you qualify for. 

Comprehensive credit reporting

Around 50 major Australian lenders, including Plenti, use ‘comprehensive credit reporting’. This means both negative and positive information is included in your report, painting a clearer picture of your credit history.

This is a good thing. If you have the ability to take out a personal loan, you’re less likely to be held back by one or two negative slip-ups from the past because the lenders will see a more balanced story of your borrowing history, including all the times you DID make payments on time!

Comprehensive credit reporting is mandatory for all lenders by 1 July, 2021.

What is a good credit score?

Your credit score takes into account information like the number of credit applications you’ve made and the amount of money you’ve borrowed. It also notes your history of repaying debts on time. 

A typical credit score will fall between zero and either 1000 or 1200, depending on the credit reporting agency. The higher the score, the better! 

Check out this credit score table from Equifax so you know where you stand:

  • Excellent: 833 – 1,200
  • Very good: 726 – 832
  • Good: 622 – 725
  • Average: 510 – 621
  • Below average to average: 0 – 509

If your credit score is over 600, chances are you will be able to secure a personal loan interest rate between 5% - 10% per annum. Scores below 510 are likely to attract a higher rate. 

Checking your credit score is a worthwhile exercise. It can help you negotiate better deals or understand why a lender rejected you. If you spot any errors in your credit report, you can fix them for free by contacting the credit reporting agency. 

Knowledge is power!

Knowledge is power!

They say knowledge is power. And in this case, knowledge is your pathway to financial freedom. 

You can get a copy of your credit report and credit score for free every 3 months. Check your credit report for free by contacting one of these credit reporting agencies:

Simply call to get your credit score on the spot or access your report online within a day or two. You could have to wait up to 10 days to get your report by email or mail. 

You can also obtain your credit report through government financial guidance site Moneysmart, or financial comparison sites like Canstar.

Give it a polish!

It makes sense to work on your credit health consistently so that you can apply for personal loans with confidence.

There are ways to clean up your credit report and increase your credit score to improve your chances of being approved:

  • Pay your rent, mortgage and utility bills on time
  • Make credit card repayments on time and try to pay more than the minimum repayment
  • Lower your credit card limit
  • Limit how many applications you make for credit 

All of these things will help your credit score to improve over time. 

Related FAQs