First home buyers guide to ‘Credit Scoring’
Lenders look at a range of factors when determining your (a first home buyer’s) eligibility for your first home loan. Other than the more obvious factors such as income, liabilities & living expenses, the other important consideration is the credit history. Your credit history has a big say on whether a loan will be approved or not.
A lender looks at your credit score (or credit rating), which appears on your credit report, to work out if they should lend you money for your first home loan. Below, we look at how your credit score works and what are some ways you can even improve your credit score.
Disclaimer: Please note our website, including this article, is in no shape or form designed to replace the need to obtain professional advice from experts such as Mortgage Brokers. We always recommend you speak to a licensed professional to determine the type of home loan that is best for you. Please visit our website’s Terms & Conditions for more information. To speak with a licensed Lending Adviser please click here.
What exactly is the ‘credit score’?
Your credit score is a number based on an analysis of your credit file, at a particular point in time, that helps a lender determine your creditworthiness, i.e. your ability to get a home loan in the future. The credit score is determined by the information reported to credit report agencies such as Equifax (formerly known as Veda) and Dun & Bradstreet (D&B).
How is the ‘credit score’ calculated?
Credit reporting agencies collect your financial and personal information from lenders & other sources and then document it on your credit report. This information is then used to calculate your credit score, which includes:
- Your personal details i.e. Date of birth and address
- The type of credit providers you have used i.e. lenders/utilities/phones
- The type of lender you are applying with i.e. private or a major lender
- The pattern of credit enquiries
- The amount of money you have applied for
- The number of applications you have made over a period of time
- Any unpaid or overdue loans or credit, i.e. defaults
- Any debt agreements or personal insolvency agreements relating to bankruptcy
Your credit score is calculated based on the information above. It is a number between 0-1200 and in simple terms, the higher your score, the better your credit profile and the more likely you are to be accepted for credit.
It is advantageous to have an ‘Excellent’ credit score when applying for your first home loan
What is a good ‘credit score’?
Using the rating system created by Equifax, Australia’s leading credit reporting agency, first home buyers credit rating can is categorised into one of the following levels:
- Below average to average (0-509) – It’s very likely that you will incur an adverse event in the next 12 months.
- Average (510-621) – This score suggests that it’s likely that you will incur an adverse event in the next 12 months.
- Good (622-725) – Adverse events are less likely to be recorded for the next 12 months.
- Very good (726-832) – Unfavourable events are unlikely to be recorded onto your credit file within the next 12 months.
- Excellent (833-1200) –Adverse events are highly unlikely to happen within the next 12 months
Do all lenders ‘credit score’ borrowers?
While the majority of lenders use credit scoring when assessing applications, there are still some lenders that don’t credit score potential borrowers. FHBA Mortgages – a complimentary home loan service assisting first home buyers with your first home loans has access to a number of lenders that will just look at your credit report but not credit score you. The rules & criteria vary significantly depending on the lender, so our FHBA Coaches will work out which lenders you qualify and provide you with various options (if applicable) and allow you to pick the lender.
How do I get my ‘credit score’?
You can get a free credit score from a number of online providers. Your credit score may vary depending on which credit reporting agency is used. The following websites offer a free credit rating:
- Credit Savvy (Experian rating)
- Credit Simple (Dun and Bradstreet score)
- Finder (Equifax score)
- Get Credit Score (Equifax score)
Whilst you are able to get your credit score from one of the above providers, your FHBA Coach can provide you with your full credit report which shows your Equifax score and all the detailed information about your credit rating. Your FHBA Coach will also be in a position to provide credit advice, inform which lenders don’t credit score and give you strategies on how to potentially improve for credit score or rating.