Many consumers feel that credit reports and scores are confusing and intimidating. This makes sense when you consider the fact that a number has the power to make your life easier or cause extensive frustration.
You need to remember that the more you know about your credit score (and credit scores in general), the more you can do what is necessary to improve your score. Likewise, it is vital to review your credit report for errors periodically.
What is the Difference Between a Credit Report and a Credit Score?
These terms are incorrectly used interchangeably, which adds to the confusion for those trying to understand their credit.
- Your Credit Report – This is a document that chronicles all aspects of your credit history. In your credit report, you will find:
- Personal information, including your name, address, driver’s license number, gender and birthdate
- Employment history
- The number of credit applications or inquiries you have made
- Information about the credit accounts in your name, including
- The provider
- Account type
- Opening date
- Closing date
- Credit limit
- Repayment history
- Defaults
- Your Credit Score – This is a number representing the personal and financial data in your credit report. The three main factors used to get your credit score are:
- The amount of money that you borrowed
- The number of credit applications you have made
- Whether you pay on time
Your score will fall somewhere between 0-1000 or 0-1200, depending on which reporting agency you consult.
You have the right to a free copy of your credit report for free every three months. Some reporting agencies will give you access to your credit score for free. You can contact the three reporting bodies at these numbers:
- Experian 1300 783 684
- illion 132 333
- Equifax 138 332
Other Factors That Can Impact Your Credit Score
- Credit Utilisation – How you use the credit available to you matters to lenders. The bigger the gap between how much credit you can access and how much credit you use, the higher your credit score will be because you appear responsible by not over-extending yourself.
- The Age of Your Credit History – Creditors want to know that you are responsible for credit. However, showing you have been responsible with credit for decades makes an even better impression.
- Credit Mix – This factor carries a bit less weight than others. However, if you have credit cards, a home loan, and a personal loan, lenders see you demonstrated responsibility to other lenders.
Why are Credit Scores so Important?
Credit scores carry so much weight because they are a financial snapshot of how responsible you are with money, particularly credit. It is one of the first things a lender will consider after you apply for a loan. Lenders want to approve loans to borrowers who have a good history of repayment and on-time payment. Typically, any financial transaction involving borrowing will involve the lender checking to see your relationship with credit.
Your credit score also holds the key to interest rates and loan approval. The scores are separated into categories as follows.
- Perfect Credit – This means your score is between 1,000 and 1,200. (Only 3.5% of Australians have a credit score in this range)
- Excellent Credit – Your score is between 800 and 999
- Very Good Credit – A credit score of 700-799 puts you in this category. The easiest way to improve this already stellar score is to limit your applications for new credit
- Average Credit – If your credit score is in the 625-699 range, you have average credit. Avoid applying for too many credit cards or loans to improve your score in the future.
- Fair Credit – You have below-average credit when your score is 501-624. Pay your bills on time, and your score will go up as you get older. Younger borrowers with little credit history often have fair credit scores.
- Poor Credit – A score of 0-500 is a poor credit score. You may have bankruptcy on your record, or you struggle with paying your bills on time. Time and prompt bill pay will be what help you get out of this situation.
Ways Applying for a Car Loan Affects Your Credit Score
Understanding the fundamentals of credit, credit scores, and reports is necessary when determining if applying for a car loan will help or harm your credit. When you apply for a car loan or any other line of credit, the lender will run a credit check before approving or denying the loan. This is known as a hard credit inquiry. They are a requirement for several loan applications, such as:
- Auto Loans
- Business Loans
- Credit Cards
- Mortgages
- Personal Loans
- Student Loans
While a single hard credit inquiry will not usually have a significant impact on your credit score, creditors look at several hard inquiries as red flags. This is because you appear to be at a greater risk since there is a record of you repeatedly trying to get more credit. For this reason, it is crucial that you know the minimum requirements for the loan and that you meet them. You should also be aware that every hard credit inquiry stays on your credit report for two years, even if the loan was not approved.
Seeking a car loan is not a negative move on your part. Applying for a car loan can have a positive impact on your credit score. Once you get approval for the loan, you will have another type of credit on your report. Also, as you make your repayments on time, your credit score will improve. One way to make sure your payments are on time is to set up automatic payments on your loan. You will have one less thing to remember, and you will boost your credit score.
When you decide to apply for a car loan, you may want to look at all of your financing options. You may find friendlier terms and faster approval by skipping the big banks and looking elsewhere.
Why Work with Loans Unlimited for a Car Loan?
With years of experience in the industry, Loans Unlimited has an extensive network of lenders who can provide the financing for a car loan, even if your credit is poor or you are a first-time borrower.
There are several kinds of loans available, including:
- Consumer Loans
- Unsecured finance
- Fixed-Rate Vehicle Loans
- No-Deposit Finance
Our lending experts will connect you with a lender who will meet your needs and help you get the car you want with the best terms possible. Each lender we work with has their lending criteria and terms. Typically, they will want proof of income, assets, and records of your debts.
Having many choices of lenders means you have the flexibility you need, and we can create the best outcome. Loans Unlimited helps you explore many options so you find the best fit. The result is much better than if you approached one of the big banks or a large lending institution. The big banks will give you the standard option take it or leave it.
If you are looking for a car loan but are not sure about your chances of approval or would like customised terms, reach out to Loans Unlimited. Our experts have helped hundreds of borrowers find the right loan with the best terms, and we can help you too.
