Clients often ask us about credit scores and what a credit score needs to be in order to secure finance. This is a difficult question as every credit provider has their own thoughts and policies with regard to lending guidelines.
With this in mind we are able to offer a guide of where we would like to see people’s credit scores in order for them to not experience difficulties when trying to secure credit.
Before I cover this it is important to understand the basics of a credit score. A credit score is a number that is displayed on the first page of a credit file. This number represents the risk profile of an applicant to a potential credit provider. Other than a bankruptcy or formal debt agreement the lowest credit score a person can have is -200 with the highest being 1200, the lower the credit score the higher the risk is considered to be. A credit score can be affected by a number of factors such as a change of address, change of employment, credit applications or enquires and of course negative credit listings such as defaults, serious credit infringements and court Writs and court judgments. Once a credit score falls below a certain level it can be very difficult for people to secure credit.
Typically a credit provider will look at three things on a credit report when assessing someone’s credit worthiness:
1) The credit score
2) Past credit applications / enquires
3) Negative listings such as defaults etc.
While credit scoring has been in existence for some time in other parts of the world such as the United States and Europe it is a relatively new concept in Australia. The idea of a credit score is quite simple; it is designed to provide a credit provider a tool to quickly assess risk. It is now a situation where many credit providers simply trigger their automated credit systems to react to a credit score, in other words if someone has a credit score of X they will get approved were if they have a score of Y they won’t.
With this in mind let’s cover my thoughts about minimum credit scores. Below a credit score is a colour coded graph. This graph starts red and ends green, remember the lower the score the higher the risk so the further into the green zone the better. While only a guide the green zone starts at approximately 600 so we would always like to see people’s credit scores in excess of 600.
While a score of 600 or more does not in itself guarantee credit will be approved it is clear that a credit score of under 600 will most definitely represent a real problem for people trying to gain finance approval.
If someone has a low credit score that has been coursed by the recording of negative listings such as payment defaults the path to a higher credit score could be achieved by the removal of the offending negative listings. For more information I would recommend engaging the services of a professional credit repair company such as Clean Credit Pty Ltd.