What is a credit score?
A Credit report also known as a credit rating, is calculated by a reporting agency based on your borrowing history.
In a nutshell, your credit score tells potential lenders how reliable you are as a borrower. Typically, a credit score will be between zero to 1,000 or 1,200 (depending on the credit reporting bureau).
Your consumer credit report includes information to identify you such as your name, date of birth, address, and employer.
It may also contain information about any instances in which you have failed to meet your repayment obligations, such as defaults, court judgements or bankruptcies. It includes information on credit cards and loans like mortgages, personal and car loans as well as credit contracts such as telephone, electricity, gas and internet. Other forms of credit include interest free store finance and store cards.
Does applying for a car loan affect your credit score?
The short and simple answer is yes, it does, but the long answer is a little more complex.
To understand how exactly applying for a car loan affects your credit score, and whether it’s a good or a bad thing, it’s important to know the basics.
Each time you apply for a credit product, the lender you’ve applied with will conduct a credit check on you. Each time a lender does this, it will leave what is known as a ‘hard inquiry’ on your report, which can impact your credit score.
This is inevitable, so having this affect your credit score isn’t good or bad – it’s necessary.
However, submitting multiple credit applications in a short period of time can cause your credit score to dip. This is because it can signal to lenders that you are in financial distress.
So, when applying for a car loan, or any credit product for that matter, it can be helpful to space out your applications as far apart as you can.
This doesn’t mean you can’t shop around for a suitable car loan. Instead of submitting multiple applications, you can use a comparison site or do your own research to find a suitable car loan for you.
To minimise the chance of your application being unsuccessful, it can be helpful to have a look at the eligibility criteria of that lender and make sure that you meet all their requirements.
Checking your credit score?
The process of checking your credit score in Australia is a simple task, with several credit bureaus offering credit checks on their online portals. Keep in mind that while these credit reporting bodies can often charge a fee to check your credit history, according to the Office of the Australian Information Commissioner, they must give Australians access to their consumer credit report completely free, every three months.
You are also entitled to request a free credit report check if you’ve been refused credit or a loan in the previous three-months, or any credit-related personal information has been changed recently.
The major Australian credit bureaus that offer free credit reports include Experian, Equifax, and illion.
Get your free credit score, here
Fix mistakes in your credit report
When you get your credit report, check that:
- All the loans and debts listed are yours
- Details such as your name and date of birth are correct
- If something is wrong or out of date, contact the credit reporting agency and ask them to fix it.
This is a free service.
Some companies may try to charge you to get all negative information removed from your credit report. The only thing they can ask the credit reporting agency to remove is wrong information. And you can do that yourself
What is a Good Credit Score to Buy a Car?
Car loan lenders usually use an applicants’ score to determine whether their product is suitable for the borrower. Generally, the higher the credit score, the lower the interest rate offered, and vice versa. For example, a borrower with bad credit is generally seen as higher risk for the lender, and as a result, will be offered a higher car loan interest rate.
Some lenders won’t even consider your application should your score fall below a certain threshold (this will differ depending on the lender). There are in fact no actual industry standards set in stone that determine the minimum score a lender should accept, so you may find it a bit tricky to wade through all the options to find the lenders that are willing to work with you no matter your score.
For Equifax, ‘below average’ is a score of 0 to 509. This means you are in the bottom 20% of the credit-active population and are more likely than average to have an adverse event in the next 12 months. ‘Average’ is a score of 510 to 621, and indicates an adverse event is as likely for someone in that category in the next 12 months as it is for the average of the wider population.
|Below Average||Average||Good||Very Good||Excellent|
|Equifax Score Range||0-509||510-621||622-725||726-832||833-1200|
Things to help you secure finance with a lower credit score
Collate supporting financial documents
Bank statements and other financial documents that demonstrates your ability to make timely payments can be beneficial to your application. After all, just because you have a black mark on your credit report from a missed payment several years ago doesn’t indicate you’re the same person you were then – people change, so the more proof you can provide, the better.
Provide a higher deposit
Even if you have a bad credit score, demonstrating to the bank that you can save up a significant amount of money to bring as a deposit can work in your favour. It also helps to reduce the amount of money you need to borrow from them, lowering your weekly/fortnightly/monthly repayments.
Engage with a finance broker
It’s difficult enough to sort through the hundreds of lenders and thousands of vehicle financing options available. Then there’s the matter of figuring out which of them are willing to work with your financial circumstances if your credit score isn’t great, which throws another spanner in the works.
Alternatively, you can skip all of that and talk to a finance broker about your specific circumstances. A skilled broker will cut down on the time it takes to find something that works for you.
A good broker (like us) will not only know which lenders and packages are available to you based on your requirements but will also work relentlessly to ensure you obtain the best possible result. They’ll be there for you every step of the process, long after the loan has been accepted and completed, to answer any questions you may have.
Get approval for a car loan today
Ready to get started? At Berra Finance we offer a range of car loan options to suit your needs. Our online fact find form makes it easy for you to get approved in less than 24 hours so you can start saving and drive away sooner.
Disclaimer: The information contained in this article is general in nature and does not consider your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice.