Many of us fear rejection, it’s only human. When it comes to applying for finance, lenders often make us jump through hoops to be approved for finance which is why it’s important that we listen up and start caring more about our financial behaviour, and our credit score.
When it comes to our financial habits, many of us have made our faults here and there. We’re all guilty of missing an occasional utility bill or making a late credit card payment, but have you ever considered how this may impact your credit score and your ability to qualify for a future loan?
We may not give it a second thought but these minor errors can be marked on your credit score which could harm your ability to be approved for finance.
A new study commissioned by finder.com.au found that 25% of Australians fear that their credit score could affect their ability to qualify for finance.
Although the majority of survey respondents (67%) don’t believe a lender will turn away their application based on their credit score, 9% of us have been knocked back because of our credit score.
If you want to purchase a property as security for your family or if you desperately need to access funds for a renovation, being rejected for finance could be devastating.
It turns out that Generation Y (40%) were the most concerned about their credit score affecting their ability to borrow compared to Generation X (31%). Interestingly, the majority of Baby Boomers (81%) did not have a fear of rejection for a new loan based on their credit score.
To give you some context, a credit score is generally a number ranging from 0-1200 that provides the lender with a snapshot of your financial position. Your credit score helps the lender decide where you sit on the risk pendulum. That is, the higher your score, the lower the risk you pose to the lender.
Knowing your credit score allows you to apply for credit with confidence and reinforce positive financial habits as you’ll likely be rewarded in the form of lower interest rates or more negotiating power.
On the flip side, knowledge of your credit score (even if it’s less than perfect) can help you make actionable changes so that you are viewed more favourably in the lender’s eyes when it comes to applying for finance.
How to Improve Your Credit Score
- Review Your Credit Score
Once you’ve identified your credit score number, you’ll see which category you fall under – above average, average, or below average. You can access your credit score online for free to decide whether you need to adjust your financial behaviour. For instance, if you’ve missed several credit card repayments, then you may want to consider consolidating your debt so that you have one manageable repayment which will give you greater control.
2. Keep An Eye Out For High-Risk Listings
These types of listings may exist on your credit file (separate to your credit score) and can include things such as a high credit card limit or bad credit listings such as defaults or serious credit infringements. If any of these are present on your credit file, you may need to seek professional advice.
3. Be Proactive About Improving Your Score
Whether it’s lowering your credit card limit, consolidating mortgage and credit card debt, or getting rid of unnecessary expenses such as an unused gym membership, there are several ways you can revamp your credit score and improve your chance of being approved for finance.
4. Regularly Review Your Credit Score
It’s important to regularly check your credit score to make sure the information is correct and to identify areas for improvement. This should become an ongoing process where you take steps to improve your financial well being especially before applying for credit such as a home loan or a personal loan.
Your credit score may seem like foreign territory, but if you do a little legwork, you can make positive changes to your financial position. A healthy credit score will give you peace of mind when applying for finance, it will provide you with access to more competitive rates and potentially more favourable product terms.