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Credit – get it sorted before you apply
Thinking of applying for a personal loan? There’s one important thing you need to do before you go any further – check your credit.
“No matter what stage of the process you’re at - whether you’re working out how much you can afford to borrow, comparing loans and lenders, gathering your documents, or you are literally just about to apply – you need to pause what you’re doing and take time to check your credit report,” Roland Bleyer said.
“Your credit report holds a wealth of information about you, detailing how you have dealt with credit in the past – and how you are handling it currently. This makes it essential reading for potential lenders, and as a result, essential reading for you. All too often, people apply for credit without checking their credit report first. This isn’t a great idea for a number of reasons.
“The point is, if you don’t check your credit, you won’t know what it says about you. But your lender will. When you apply, your lender will use the information within your credit report to determine the outcome of your application. If you have sketchy credit, your application could be rejected – or you may have to pay a much higher interest rate on your loan.”
Roland Bleyer is the founder of Australia’s leading independent financial comparison site specialising in personal loans, car loans, business loans and credit cards – CreditWorld.com.au. He has some essential information regarding your credit report and how it relates to your personal loan.
What is your credit report?
According to Bleyer, credit providers are bound by law to report any dealings they have with you to the credit reporting agencies. This information is added to your credit report to allow potential lenders and other credit providers to assess your creditworthiness in the future.
“First up, your credit report will detail your personal information. This will likely include your full name, your date of birth, our address and your driver’s licence number. Moving on from that, it will list a range of information about your financial activities,” Bleyer explained. These include:
Credit accounts. For each credit product you have held in the past two years, it will provide information regarding the type of credit product, the credit provider and the credit limit.
Repayment history. This may include the repayment amount, repayment frequency, and how often repayments have been made on time. It will also detail missed payments, and if and when they were made.
Credit applications and enquiries. The report provides a list of all credit enquiries or applications made in your name. This may include requests for your credit report made by credit providers, and any credit applications you’ve made.
Defaults. If you have failed to make a payment to a credit provider on a loan, credit card, utility bill or phone bill, this may be listed in your credit report as a default.
Credit infringements. If you have any bankruptcies or debt agreements, court judgments, or personal insolvency agreements in your name, it will be noted in your credit report.
How your credit affects your personal loan
Type of loan
“If your credit is not so good, you may have to make certain choices to either make the loan more affordable for you, or to improve your chances of getting approved. If your credit is middling, you may find a secured loan allows you to get a lower rate, creating a more affordable repayment schedule. On the other hand, if you have good credit, you can opt for a secured or unsecured loan, at a fixed or variable rate, knowing that the rate you get should be lower than an applicant with a poorer credit score,” Bleyer added.
Approval
“Your credit will impact your chances of approval. If your credit is bad, you may find it harder to get approved. You may need to apply for a loan from a lender that specialises in bad credit personal loans. While this may give you access to the funds you need, you will likely pay more in fees and interest, making the loan more costly overall. If your credit is good, you should find it much easier to get approved. Again, this opens up your options to allow you to choose from a wider range of lenders and a wider range of loans,” Bleyer emphasised.
Interest
According to Bleyer, on approving your loan, the lender will provide you with the interest rate that will be applied to the loan, which will either be variable or fixed over the entire loan term. If your credit is good enough to allow you to get approved, but still not great overall, the interest on your loan will likely be higher than other applicants.
How to improve your credit
According to Bleyer, you may decide to hold off on applying for now, to take time to improve your credit and boost your credit score. If you want to improve your credit with positive actions, that could include:
Always paying your bills on time. This includes utility bills, internet and phone.
Always making your repayments on time. If you are currently paying off a loan, or if you have a credit card, make sure to always pay these repayments by the due date.
Making an effort to build your savings. Try to deposit a certain amount each week into a savings account, to provide proof of your savings efforts.
Ensuring you have a regular and reliable income. Lenders want to know you have a steady income, so you can make your repayments.
Paying down your debts. Try to pay more than the minimum on your credit cards, and get your balance down to zero if you can.
Multiple credit applications. Making lots of applications within a short period of time can make you look desperate for credit.
Unsuccessful credit applications. These look even worse on your credit file.
Defaults. Missed payments and defaults will pull down your credit score.
Set up a payment reminder or automatic payment to ensure you always make your repayments on time. If you find you cannot make your repayment, contact your provider before the due date to see if there is any way to deal with the problem
Bankruptcies, court judgments or debt agreements. Having any of these recorded on your credit report will lower your credit score significantly.
Roland Bleyer is the founder of CreditWorld.com.au, a website which allows Australians to compare the best deals on credit cards, car loans, personal loans and business loans so they can find the one that best suits their needs. Bleyer is considered a credit and loan expert, and has appeared on TV and various other publications to discuss the credit industry. Using CreditWorld.com.au, you can easily compare a wide range of loans offers. Their comparison tool makes this especially easy.
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