You’ve probably heard the term ‘credit score’ thrown around, perhaps even had a lender tell you that your loan ‘failed credit score’, or was ‘declined due to credit score’ – so what is a ‘credit score’? And just how does this affect your application?
As unfair as it may sound, a credit score is simply a computer generated algorithm that determines the level of risk of any given application. To put it bluntly, ‘computer says no!’ – well, not always no, in fact mostly yes – but you get what I’m saying here.
Both banks and mortgage insurers credit score – when you submit your application, all the data from your application is collated and run through their credit score.
Although the banks don’t disclose their exact criteria and every bank has a different scoring system, they may take into account anything from how many jobs you’ve had over the last few years, your age, are you a family, have you moved house multiple times, what your asset position is compared to your liabilities and even simple details like phone numbers – I’ve heard stories where applications were credit score declined and the only information provided to turn the decline into an approval was providing the clients home phone number!
As you can guess this is not really an issue in today’s age where it is less common to have a land line, but it gives you a good idea of just how far some lenders will go with their risk assessments.
Another important factor of credit scoring is your credit file. Many do not know, and most lenders won’t tell you – whenever you make an enquiry for finance, that enquiry is logged in your credit file – even if you didn’t take out a loan – and yes, sometimes even when you are simply just asking the lender for basic information, such as ‘how much can I borrow’.
I’ve seen situations where a client has simply been rate shopping from one lender to the next to see who has the best rates and to see if they can be pre-approved. The first few lenders provide a pre-approval, but then for some unknown reason after that the declines start rolling in – and you can’t quite work out why. This screams of an over active credit file – just having multiple enquiries on your file is enough to tip the scales against you and cause you all sorts of trouble.
The thing to take away here is to be careful when you are shopping around. If you’ve provided your personal information to a bank, chances are they are doing a credit check. A mortgage broker is largely different and likely doesn’t do a credit check unless it’s needed, even then the type of check may be different and might not leave a ‘loan enquiry’ footprint on your credit file like a bank would.
The biggest benefit with a mortgage broker in this space is the ability to provide you with a range of pre-vetted lenders, with rates pre-shopped whilst keeping a clean trail along the way.
Our qualified mortgage brokers can help you obtain a copy of your credit file and help you understand what it is all about.
Contact us today if you’d like some help!
