What is a Credit Rating? Your credit rating is like a grade assigned to you by a lender based on your credit score. It helps them decide how to evaluate your loan application. Different banks have their own rating systems; for example, CBA uses a five-tier system. 

• Rating 1 or 2: Great customer. 
• Rating 3: Assessed normally. 
• Rating 4: Likely declined unless with a good reason. 
• Rating 5: Almost always declined. 

How to Know Your Rating: Your credit rating is determined by the lender’s calculation, considering factors like your credit history, employment, stability, income, and loan security. Different banks use various formulas, so your rating may vary. 

Factors Used to Calculate Credit Rating: Lenders consider multiple factors to calculate your credit rating.

Here are some examples: 

• Loan Purpose: Different risks for buying a home, investment property, refinancing, debt consolidation, or business funding. 
• Applying Solo or Jointly: Solo applications are lower risk. 
• Residence Duration: Longer residence is lower risk. 
• Employment Duration: Longer employment is lower risk. 
• Employment Type: Permanent is lower risk. 
• Credit Enquiries: Fewer recent enquiries are lower risk. 
• Credit Problems: Bankruptcies and unpaid defaults are high risk. 
• Missed Payments: Timely payments are lower risk. 
• Loan Amount: Larger amounts are higher risk. 
• Loan-to-Value Ratio (LVR): Higher LVRs are higher risk. 
• Savings: More savings are lower risk. 
• Net Assets: Positive net assets are lower risk. 

Failing a Lender’s Credit Rating: Sometimes, you may be informed that you failed a lender’s credit rating. This means the computer system assessed your application as too high-risk.

Equifax and Your Credit Rating: Equifax (formerly Veda Advantage) holds your credit file. While Equifax provides your Equifax Score, lenders use this information to assign a credit rating, categorizing you as a good or bad borrower. 

Credit Rating vs. Credit Score: Your credit rating is the lender’s grade (numeric or letters), while your credit score is a score from credit reporting agencies (Equifax, Experian, Illion) based on your credit file. 

No Credit History: People without credit facilities are considered higher risk. Lenders may require you to prove yourself with a small commitment before approving a home loan.  

Improving Your Rating: Making payments on time improves your creditworthiness. Lenders trust borrowers with a history of timely repayments. Having a few well-managed credit accounts is better than having too many debts. 

Bank Account and Credit Rating: An open bank account can contribute to your credit rating. Maintaining a positive account history, avoiding overdrafts, and having a healthy balance can enhance your rating. 

Check Your Personal Credit Rating: You can ask your bank to check your credit rating, providing insights into how their system views your financial behavior. 

Understanding and managing your credit rating is crucial when seeking a home loan.