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An essential step in the lending assessment process for any bank is a check on your credit score (as an individual and your business legal entity if applicable).

What is a credit score?

Your credit score is a numerical score calculated using an algorithm that draws on information from your credit file. Financial institutions use the score as part of their assessment process to determine the risk of lending you money. A high score means you have demonstrated a history of financial responsibility and therefore present as a less risky borrowerSome banks conduct automated credit scoring, other assess your credit history manually.

How is IT calculated?

The score is calculated looking at patterns in your credit history such as:

  • Making numerous credit enquiries with different lenders within a short period of time is less favourable than having few and infrequent enquiries.
  • The spread of credit enquiries over time.
  • Negative information such as defaults, infringements, court judgements are all high risk events which can adversely impact your credit score.

How is IT used?

Your credit score in conjunction with all the other information you provide to a lender in your application is used to assess the degree of risk that you will repay the loan.

Final Thoughts

Aim to keep your credit score as high as possible. Pay your bills on time, pay off your debt regularly, build up your savings and don’t have too many credit enquiries within a short timeframe.

However, if you have any adverse credit history it is best to seek advice from your Finnace Broker about which lenders have a more lenient approach to adverse prior events.