When applying for a loan, lenders are going to ask about your credit score and credit history. Your credit affects your likelihood of getting a loan and the rates you’ll receive. But what is it exactly and why is it so important?
In this guide, we answer the frequently asked questions about credit so you can start your car loan applications with ease.
What is a credit score?
Credit scores represent a borrower’s trustworthiness or creditworthiness. Lenders use credit scores as a way of judging your ability to make timely repayments on a loan. If you have a high credit score, it tells lenders that you’re trustworthy. This makes lenders more inclined to approve your loan application or offer you lower rates and fees.
Credit bureaus calculate your credit score using your credit report. It includes your outstanding debts, lines of credit, loan or credit card applications, timeliness of bill and debt payments, and other relevant financial transactions.
Credit scores range from zero to 1000 or 1200 depending on the credit reporting agency. If the credit report is out of 1000, a good credit score is anything above 540. For credit reports out of 1200, a good credit score would be above 661.
How to check your credit score
You can check your credit score by requesting a credit report from a credit reporting body (e.g., Equifax, Experian, illion). Or you can get in touch with an online credit score provider. A credit report contains your credit history. It includes bill payments, debt, defaults, court judgements, credit enquiries, and other information that shows how you handle your finances.
You may request a copy of your credit report for free every three months. The report will also detail whether your credit score is rated as low, fair, good, very good, or excellent.
Note that each credit score provider holds different information. Your credit score may vary depending on where you get your credit report. You could request a copy from different credit bureaus to view your credit score.
Why is your credit history important?
Your credit history determines your credit score or credit rating. If you have a healthy credit history, you’re likely to garner a good credit score. An unhealthy credit history results in a poor credit rating.
Lenders may also look at your credit history to check your activity. They want to know if you have multiple finance applications to different finance companies over a relatively short period of time. Having a busy credit history may make you look like you’re ‘overshopping’. This increases the possibility that you will be wrongly identified as a likely default risk.
What happens if you have a bad credit score?
If you have a bad credit score, you may have a harder time getting a good car loan. Since lenders see a bad credit score as risky, they’re less likely to approve applications. Even if your loan application gets accepted, you could still end up paying a higher interest rate. You may also have access to fewer loansbecause of bad credit.
How do you increase your credit score?
There is no quick and instant way to fix your credit score. Since your credit rating is contingent on your credit history, your focus should be improving your spending habits. You can improve your credit rating in several ways such as:
- Correcting any errors on your credit report.
- Paying your bills on time and in full.
- Paying any outstanding debts.
- Limit your loan or credit card applications.
It may take a few years to totally transform your credit from ‘bad’ to ‘excellent’, but it’s not impossible. Make sure to follow the tips above and you can slowly but surely improve your credit rating.
What loans can you get with bad credit?
If you need a car loan right now, but your credit isn’t in great shape, don’t worry. There are car loans out there specifically designed for those who have low credit scores called bad credit car loans. To get the best rate without the hassle, the best thing to do is talk to a broker like Aussie Car Loans.
We can advise you on your options and then put in the one application for the best credit deal for you. You don’t have to search high and low for a good loan, we’ll find one for you. Get in touch with us today by calling 1300 889 669 or apply online!
What is considered a strong credit history?
A strong credit history consists of timely payments of bills and debt, no defaults on loans, and other transactions that would indicate good financial standing. Lenders use your credit history to gauge how well you can juggle multiple loans or measure the likelihood that you will pay the loan back.
What is a good credit score in Australia?
Your credit score is determined by how a specific credit bureau calculates your credit rating. For credit reports that have a score out of 1200, a score of 661 and above is deemed good while a score of 853 and above is excellent. If the credit report shows a score out of 1000, a score of 540 and above is good and a score of 690 and above is excellent.
What is a bad credit history?
A bad credit history may include multiple and consistent late payments, defaulting on loans, too many lines of credit, and the like. If your credit history has multiple credit checks, this could reflect badly on your credit score as well.
How long does a bad credit history last in Australia?
It depends on the type of credit history, some infractions can last from one to seven years. A bankruptcy can stay on your credit report for two to five years. A court judgement, credit enquiry, and default will last for five years. Repayment history and current consumer credit obligations can last for two years.
How long does it take to rebuild bad credit?
Building your credit back up could take a few years depending on the severity of your credit history. If you’ve experienced bankruptcy, it may take six years or longer to rebuild your credit. For missed payments on your loan, it could take only 18 months.
Can you pay to fix your credit score?
It is recommended to fix your credit score by yourself through responsible financial practices. Paying credit repair companies may be expensive and cannot guarantee to improve your credit score.
How can I improve my credit score quickly?
You can improve your credit score quickly by correcting any errors on your credit report and paying your bills and debt on time.
Is it possible to erase poor credit history?
It’s not possible to erase poor credit history as long as it’s correct. You can still build up your credit score through on-time bills and debt payments.