Equifax (formerly Veda) has a detailed system for credit scoring a person and a business. Their scores are based on a scale of 0 to 1,200.
Effective September 2018, major banks and most credit providers will add additional information about your credit products on your credit report. The new information will include:
- The type of credit products you have held in the past two years.
- Your usual repayment amounts.
- How often you make repayments and if you make them by the due date.
This will give more transparency to prospective lenders about your credit file. The majority of lenders are looking for a credit score of 600-650 to consider the loan, with 400 the lowest possible score.
Credit score matrix
*Scoring predictor based on probability to experience or list an adverse event on your credit report in the next 12 months.
Slow trade payments, reoccurring collection activity, payment defaults, court judgements or one-off events such as repossessions and bankruptcies will negatively impact your credit score. Low scorers have the potential to be slow payers, default on loans or become potential loss accounts for lenders.
Couple a low score with the fact you operate in an industry many lenders have pulled back from based on previous and future expected losses from closures, and you now have limited access to funds.
5 ways to protect your score
- Don’t make numerous credit enquiries in a short period of time
Multiple enquiries over a short period (say three to six months) will negatively impact your credit score. Excessive activity isn’t attractive to a prospective lender. When you apply for interest-free finances, it could involve more than one lender and result in unnecessary hits on your credit file.
- Pay bills, rent and mortgage loans on time
Slow repayment history or defaults will negatively impact your credit score. Prioritise payments for mobile phones, electricity and gas services. Defaults for more than $500 for Telcos or trade suppliers severely reduce your chances of loan approval. Defaults and slow payments to banks or finance companies could see your chances evaporate. Overdue debts and defaults are listed for five years, even if they are paid, and will negatively impact your credit score.
- Be wary of online finance portals
Most cash flow lenders operate on volumes of leads and enquiry as the closing ration (enquiry to settlement). For some, the ratio is as low as 10 to 15 per cent. To make it worthwhile, lenders need automation, which means links to your credit file. Too many businesses make multiple online applications just to see what happens, impacting their credit score and likely reducing their chances of success. - Unpaid ATO debts not lodged or under arrangement
The Australian Taxation Office (ATO) announced that it would start recording tax debt defaults on the credit files of business owners from 1 July 2017. Tax debt in excess of $10,000 and 90 days overdue will now be recorded if the business hasn’t contacted the ATO to manage the debt.
- Research and improve your chances of success
Choose a specialist financier or broker who knows your industry. Your broker may do home loans, but can they finance a fitout, soft costs, CCTV or digital signage? Enquires that aren’t funded for whatever reason still count and are visible on you credit file, so you need to get it right the first time.
For more information, contact Commerical Finance Corporation on 02 9167 7910 or visit the website.