You’ve done the leg work, you’ve found that new dream house or the perfect investment property or perhaps you can finally refinance and consolidate all that crappy debt that’s been keeping you poor for what seems like an eternity. Things are getting exciting!
You get all your things in order and submit your finance application and then by the end of the day you’ve been informed your application has been declined due to credit scoring!!! But didn’t it service? Sure did. Wasn’t the security ok? It was fine. Well then what’s the problem? Basically you scored poorly on your lenders credit scoring system and it’s a scenario that we’re seeing more and more of as most lenders and mortgage insurers have implemented credit scoring into their approval process.
What is Credit Scoring?
Credit scoring is an automatic system that scores / rates your finance application even before the assessors lay a hand on the file. The scoring system is based on algorithms that are derived from years of historical lending data. If you score too low, then your application will be declined immediately.
Although they won’t tell us how the scoring is calculated, we have a fair idea as to what impacts on the system in a negative way and how to structure applications to ensure that you don’t get negatively scored.
Following are a list of 7 things that will not only impact your score but will also impact your ability to obtain finance in general and they are well worth keeping in mind:
1. A large number of credit enquiries
Most clients are not aware of the number of enquiries on their Veda (credit) report. What they fail to understand is that with the advent of online applications for everything from credit cards to mortgages, every time they make an application a query is immediately posted on their Veda report. We are seeing the situation where applicants have a large number of enquiries due to the fact that they’ve been lodging online applications often just to see what they would qualify for.
Each application is an enquiry and impacts their score regardless of whether they proceed with the facility or not.
What can be done if you have too many queries?
The first thing to do is to stop lodging online applications to see if you qualify. Either come to us or go directly to the credit provider and request that they qualify you before they undertake a credit enquiry. If they won’t do this, find a credit provider that will; they are out there.
Not all lenders credit score and some have a process where the queries can be explained away, although this cost takes time. If you have a large number of enquiries that are impacting your borrowing ability, then use one of these lenders. We can help you with this process.
If you’ve seen your credit report you’ll be aware of the date of the applications. Wait until those enquiries have an anniversary and they slide into the next category before lodging your application.
A good broker will address this issue upfront and then guide you to an appropriate lender or set a strategy to overcome this obstacle, saving you substantial grief in the process.
Tip: Be very careful about lodging online applications for anything!!
2. Large credit card limits
Ok, so you’ve got a couple of credit cards. One gets you points, the other is a low rate and they both have minimal balances. However, it doesn’t matter why and how you use the card with lenders. All the lender is concerned about is the card limit.
The full limit is applied in servicing and will impact the amount that you can borrow. Reduce your card limit before applying for a loan, particularly if your servicing is tight.
3. Defaults or judgements on your Veda report
If you have any adverse credit or accounts in dispute, it’s a good idea to pay them and then fight them. Try to avoid having any disputes progressing through to the default or judgement stage as this will impact your ability to obtain the cheapest funding around. It won’t stop you borrowing money, however, it will mean that you may have to use lenders that specialise in credit impaired lending which is what you will now be classified as.
If you have recordings that you consider are inaccurate, then there are companies that specialise in having these removed from your credit report. Contact us and we can put you in contact with these companies.
4. A number of residential addresses
Your Veda report will show every address that you provide on a credit application. If you move around a lot you will tally up addresses which will score you down. If possible, try to find a stable address and not move around too much. It will just make things a lot easier for you.
5. A number of different employers
If possible, attempt to stay with the same employer for at least 12 months. If you’re constantly jumping from job to job you will be scored down unless there’s a valid reason. If there is, let your broker know that reason so that they can explain it to lenders or place your application with a lender that perhaps doesn’t credit score.
Further to this, apply for your finance prior to moving to a new job if possible. It can often be difficult to obtain finance if you’re on probation. The longer you’re in a job the higher the score you will obtain.
6. Joint loans
So you own an investment property with another person or persons, fantastic. That’s a great strategy which helps diversify your property portfolio and reduce your risk. Unfortunately, many lenders will apply the” full” debt and only “your” portion of the income to the servicing which can knock you out of the game immediately even though you have plenty of income to service the proposed loan.
Once again, there are lenders that have different policies that will treat you more favourably. We can help you find the right lender to meet your specific requirements.
7. Starting a new business
If you’ve recently established a new business then your options in obtaining finance are significantly reduced. Establishing any business is a risky proposition and most lenders want to see at least 2 years trading history before considering an application for finance. Some lenders will consider an application prior to the 2 years; however they will charge a higher rate and advance you less.
We hope we’ve provided you with a few tips on improving your ability to obtain finance. We might be biased, but we think the best option is to come to us with your financing requirements before you do anything. We will then guide you through the process to ensure that you not only obtain the best facility for your needs but you’ll have a stress free experience in the process and our service won’t cost you a thing. Contact us
If you would like to read more about Shayne Fergus please click here
Did you like this article? If you would like to receive more articles similar to this, feel free to subscribe to our list and we’ll guarantee that we’ll only forward timely and informative articles that we promise will help you create wealth or save money. If you have a friend that you think could benefit from this article, please feel free to forward this through to them.