When you apply for a personal loan, you can expect the lender to check your credit history, current debt and income so they feel confident you can repay the loan.
Your credit score is a number that sums up the information on your credit report. It tells the lender whether or not you are a trustworthy borrower.
A poor credit score can make it hard to obtain a personal loan with a competitive interest rate.
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 car 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.
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.
Give it a polish!
There are ways to clean up your credit report and increase your credit score to improve your chances of being approved for a personal loan:
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.
How can I find my credit score?
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: