Credit checks and Banks – What do lenders look for ?
How are Credit Checks and Banks or lenders associated?
In simple terms, what does a lender look for on your credit history and how do they do it. The relationship between credit checks and banks.
This post only looks at what characteristics a lender looks at on a credit file and does not look at remedies. The purpose of this article is to provide a brief insight into how and what a lender looks at on your credit file.
Firstly let’s look at who accesses your credit file when they conduct a credit check. Credit providers are the organizations who leave a foot print on your credit history when ever they login in and access a copy. Credit providers include banks and other non bank lenders, utility providers for services such as electricity & gas and Telcos for any contractual phone or internet services.
The most common and frequent to access credit files is by far the banks. Every time a consumer or organization applies for any type of finance the banks will certainly conduct a credit check and access the applicants credit history.
In Australia when it comes to credit checks and banks, it is mostly the big four banks and they are mostly accessing your Veda Equifax credit file. Credit providers have accounts with Veda Equifax and obtain your file online with your permission.
Here’s what they look for;
1. Any sign of late payments.
This information is a somewhat recent addition which banks now add to credit files showing the payment history on current lines of credit, especially credit cards. Although a late payment is not considered a default it is still not great when it appears and consequently lowers your credit score.
2. Credit score.
This is a numbered score Veda Equifax provide on the credit report which is based on aspects of your credit file compared to the rest of the Australian population. Some lenders rely upon a “score” more than others in their process of deciding if finance is to be approved. Be aware that the score alone does NOT determine the outcome of an application. It is only an additional tool for lenders which helps them assess you.
3. Defaults or court actions.
These are by far one of the worst item to appear on your credit file. In relation to credit checks and banks there is not a lot worse than having default appear. Defaults and court actions greatly reduce your credit score and in many cases automatically veto you from having finance approved. Sometimes these can be removed but that is discussed in other areas or websites such as www.fixbaddebt.com.au
4. Bankruptcy entries.
Absolutely the most harmful entry that can appear on a credit file. So bad in fact that Veda Equifax don’t even issue a credit score once a bankruptcy entry is present. Full bankruptcy or debt agreements such as part nine’s all appear under the same section on a credit file reserved for any bankruptcy related info. Such entries almost guarantee a decline in approval for any type of finance or credit. These cannot be remove early by anyone or any service.
Your credit application history is reviewed by banks and credit providers in order to assess your “shopping pattern” when it comes to finance. It also has an effect on your Veda Equifax credit score. Too many applications can be harmful. At the same time having no applications in the last five years does not contribute to a great score as essentially you have no “shopping history” so a lender cannot gauge your movements if there are none there!. The type of applications are important also. Too many applications appearing with fast money or payday loans is adverse and reduces your credit score. When it comes to credit checks and banks, avoid all fast money applications. Also minimize the amount of credit card application you make as they can be viewed as another source of fast money in some circumstances.
6. Accurate and consistent credit file information
that matches the information on your finance application. Any anomalies such as spelling errors, address or employment discrepancies, incorrect date of birth, license numbers etc are not favorable if they don’t all match up. Get a copy of your credit file before making an application and make sure everything is correct and consistent. It’s that simple however many people don’t bother doing it.
There are other aspects of a credit file a lender will look at but these are the primary ones listed above.
Understanding how credit checks and banks work together can assist you in preparation for successful outcomes in finance applications. As they say, Knowledge is power !!! Good luck.
Author – Mark Agar. 24 years experience in loans and credit card receivables, credit file reporting/assessment and analysis.