Credit scores play a crucial role for a lender deciding whether to give someone a car loan and at what interest rate, but two-thirds of Australian’s don't even know their own credit score.
Let’s jump into the 8 things you should know about your credit score before applying for a car loan:
Typically between 0 and 1,000, a credit score is a numerical value that lenders use to evaluate the probability that an individual will repay their debts. They’re designed to help make decisions easier for lenders, summarising a customer’s likelihood to pay back their loan without the hassle of looking at a full customer credit history.
Credit scores are calculated by credit bureaus, who collect information on customers such as the number and types of credit accounts, how long each account has been open, the number of enquiries on the file (even if you didn’t go ahead with a loan!), any bankruptcies or defaults and other such information which, when combined, forms an individual’s credit history.
The higher your credit score, the more likely you are to get approved for a loan at a good interest rate.
Although related, credit scores and credit histories are different things and the distinction is important.
A credit score is a single number that summarises your credit history. Checking your credit score (if done correctly!) won’t be recorded on your credit history, and therefore won’t impact your ability to get credit in the future.
Your credit history is a detailed summary of your financial history in the form of a credit report, which includes granular information on previous credit products, bankruptcies, defaults and repayment history.
Every time a lender pulls your credit history, an enquiry is recorded on your credit report that will remain there for five years.
That’s why the Driva platform only looks at your credit score when getting your personalised car loan quotes.
Because of this, your credit score might be slightly different for each of the three companies.
As a general rule, your credit score ranking can be broken down into categories:
These rankings are based on the Equifax credit score, which is the score used by most Driva lenders, but these ranking vary by provider: