What is a Credit Score?
A credit score is calculated on information in an applicant’s credit report based on the conduct of any type of loan that they have taken out over the last 5 years. In Australia Banks, Utilities and any other lending institutions access credit reports of an applicant to determine whether or not they are considered a high risk, medium risk or low risk borrower.
The clients credit score determines whether an applicant has the ability to borrow at all, how much they can borrower, what type of borrowing is available and what interest rate would be paid.
How does a Credit Score Work?
A credit score may change over time, depending on the conduct of the repayment history of a particular loan facility. Credit scores range between 0 and 1,200 – with 0 being considered high risk and 1,200 being considered low risk.
Below breaks down an individual or companies credit score in further detail;
833–1,200 (Excellent)
If you fall within this range, it is considered HIGHLY UNLIKELY that defaulting on a loan or incurring late payment would occur. The odds of those in this range are likely to keep a credit score in this range and are 5 times more likely to do so than the rest of the population.
726-832 (Very Good)
Applicants within this range are UNLIKELY to default on loan payments over the next 12 months. The probability of maintaining this score over the next 12 months is 2 times better that the rest of the population.
622-725 (Good)
A credit score in this range suggests an applicant is LESS LIKELY to incur adverse payment history that could harm the credit score in the short to medium future. The change of keeping their credit score in this range is better than average compared to the rest of the population.
510-621 (Average)
If a credit score falls in this bracket the applicant is considered to have an average credit worthiness. As a result, it is considered LIKELY that an applicant will incur slow payment history or payment default on a loan facility in the next 12 months.
0-509 (Below Average)
This range is the worst of all and falls within the bottom 20% of the population. It is VERY LIKELY that the event of slow payment history, credit default, court judgement of bankruptcy will occur to those in this range.
What are the things that affect my credit score?
- The number of loan facilities applied for in the last 12 months
- Payment history on current loans – have payments been made on time or have they been late on a number of occasions
- Payment defaults listed by credit or utilities providers
- Court judgement brought against an applicant in a magistrate’s court
- Bankruptcy
- Debt agreements
- Insolvency agreements
Therefore, to achieve a credit score in the excellent to good range, applicants have to have excellent payment history on their current loan facilities and do not have payment defaults or court actions listed against their names.
Moreover, if a credit score is in the average to below average range, this indicates that applicants have applied for numerous loan facilities in the last 12 months, had slow payment history on current loan facilities and or had defaults or court actions noted against their credit file.
What Implications does a Credit Score have when Borrowing?
When obtaining truck finance an applicant’s credit score has implications on the interest rate on the proposed loan facility, the type of loan products available and the turnaround times for approval.
833– 200 (Excellent)
- Access to the best interest rates
- Negotiate the best deal with many different financiers
- Very quick turnarounds for approval as minimal questions asked by the lender when assessing an application
- Many different loan products available to meet the client’s needs
726-832 (Very Good)
- Client can negotiate good rates with the lender
- The ability to source funding from many financiers
- Can access loan products to best suit their needs going forward
- Quick turnaround times for approvals as less time is spent assessing a client’s loan application
622-725 (Good)
- Client has access to the standard rates offered by most financiers
- Fewer lenders willing to assess applications
- Standard turnaround times for approvals as the applications are assessed on a more structured basis
- Standard loan products available
510-621 (Average)
- The number of lenders willing to advance funds is reduced significantly, generally big banks unlikely to lend
- Deals generally assessed by private or specialist industry funders
- Rates paid are high due to the increased risk profile of the applicant
- Approvals take longer to be issued as more investigation is made into the applicant
- Limited access to loan products
0-509 (Below Average)
- Extremely restricted access to funders
- Very high interest rates incurred
- Very limited product offering with many different conditions imposed
- Turnaround times for approvals are prolonged
- High chance of a declined decision for applicants with this type of credit score
How can I access my Credit File?
To ascertain your credit score, you can access it online through a company called Veda Advantage – www.veda.com.au . Once you obtain your file, you will see where you fall within the different levels to see what access to funding you will have going forward. The information on your credit file is held for 5 years and can be improved over time. You can also question your credit score with Veda Advantage and take the necessary steps to remove any questionable items that may appear on your file.
As can been seen from above, the world of Equipment Finance in Australia can be more complex than what most people think. In order to secure the best funding solution relating to Farm Machinery Finance or any other form of Heavy Equipment Finance, it’s important to apply through a company that specialises in this area of finance. The team at Heavy Vehicle Finance will ensure that you achieve the best funding solution based on your credit score. For more details, please call on of our consultants on 1300 788 740.
