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 everything in order and submit your finance application only to be immediately informed that 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 regularly as most lenders and mortgage insurers have implemented credit scoring into their approval process.
What is Credit Scoring?
Credit scoring is an algorithm 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. With the advent of online applications for everything from credit cards to mortgages, every time you make an application a query is immediately posted on your Veda report.
We are seeing applicants with large number of enquiries due to the fact that they’ve been lodging online applications often just to see how much they could possibly qualify for.
Each application is an enquiry and impacts their score negatively regardless of whether they proceed with the facility or not.
What can be done if you have too many queries?
- Stop lodging online applications
If you want to find out what you can borrow and who might provide you with finance come directly to us. We can tell you this information in a timely manner and it won’t impact your credit report!!
It will also save you a substantial amount of time!
- Find a lender that doesn’t credit score
They are out there. Once again the best way to find them is to come directly to us and we’ll quickly tell you whether they’re able to assist you.
- Hold back on submitting your application
Your credit enquiries will eventually roll off your report with the passing of time, so sometimes it may pay just to wait until this occurs and your scoring will improve.
A number of enquiries in a 12 month period impacts the score heavily. So if you’ve been active, you may have to wait a few months until those listings celebrate their 1st birthday.
Tip: Be very careful about lodging online applications for anything!!
2. Large credit card limits
However, it doesn’t matter why and how you use the card with lenders. All the lender is concerned about is the card limit.
Lenders will apply the the full limit to-wards servicing impacting the amount that you can borrow.
Reduce your card limit or even close the account off before applying for a loan, particularly if your servicing is tight.
Do you really need $20k in credit card limits?
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 ways to have these removed from your credit report.
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. The longer the better. Constantly changing jobs can impact you negatively.
If there’s a reason for constant changes, let us know so that we can explain it to lenders or place your application with a lender that perhaps doesn’t credit score.
If you’re considering moving jobs in the immediate future, it may pay to submit your loan application prior to moving to a new job if possible.
It can often be difficult to obtain finance if you’re on probation or recently started with a new employer. 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 probably won’t cost you a thing.
We reckon that’s a pretty good deal!!
Like to discuss your financing requirements Contact us now as we’d love to chat with you!
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