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When applying for credit in Australia, the majority of lenders will approve or decline your loan based on a point scoring method. They will input the information contained in your application into a computer program which will automatically assign a "score" for each entry category on the application form. For example, if the loan type requires a minimum 70pts out of 100 for approval and the computer program has only scored you as having 65pts, you will be declined.
The lender will also conduct a check of your CRAA file (Credit Reference Association of Australia) with a credit reporting agency. For more information on credit files, or to obtain a copy of your credit file, see our article "Refused Credit? – Review Your Credit File".
Details on your application form will be correlated with those on your credit file and similarly assigned a score.
The table below indicates the type of details a lender will feed into their computer based upon your application form and credit file, and how these will affect your point score:
|
CATEGORIES |
HIGH POINTS |
LOW POINTS
|
|
Employment History |
Stable, full-time employment with only one or two employers over the last 5 years |
Unstable work history, or temporary, part-time or probational employment |
|
Employment Type |
Highly skilled, stable profession |
Unskilled or Self-Employed |
|
Residential History |
Lived at the same address for a number of years |
Have moved several times over the last 5 years |
|
Residence Type |
Own home |
Rental |
|
Residential Suburb |
Areas with high employment / low default rate |
Areas with high unemployment / high default rates |
|
Credit Purpose |
Home renovations, car purchase |
Holiday or to pay off another loan |
|
Credit Applications |
Few applications – all approved |
Many applications – many declined |
|
Defaults or seriously overdue / substantially late payments |
None in the last 5 years |
One or more |
|
Default judgements (i.e. court judgements) |
None in the last 5 years |
One or more |
|
Bankruptcies |
None in the last 7 years |
One or more |
The term "disposable income" relates to the amount of income you have left after your expenses are taken out from your net income. If your loan repayment is 50% or more of your monthly disposable income, then you are unlikely to be approved.
Again this will be influenced by whether the credit you are applying for is "secured" by an asset (i.e. property) or "unsecured". If the credit is unsecured but someone with assets and a good credit history agrees to be guarantor for your loan, this will count considerably in your favour.
Knowing what a lender looks for when scoring your credit application will go a long way toward ensuring your are successful in gaining approval. Using a good mortgage broker for home lending will help as they can ensure that your application is the best it can be before they forward it to the lender. I Hate Banks.com.au can now recommend a mortgage broker (Australia wide) - click here if you wish to find out about them.
If you are experiencing trouble with obtaining a home loan, read our article: Difficulty Obtaining a Home Loan?
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