How Credit Checking Process Works?

by / Monday, 02 May 2016 / Published in Credit Score/Report

Credit history is comprised of all the credit related personal information of an individual. It is usually the sensitive details about the credit worthiness of the folks which include debts, credit, loan applications, even bankruptcy, defaults, court judgment and court writ information. Credit checks are essentially acknowledged as Credit History Checks/Credit Reference Checks. Credit checks has been made when an individual apply for a loan or line of credit.

In Australia, the credit scores which are also termed as credit reports are basically held by the Credit Bureaus. Many credit providers such as banks, utility companies, building societies, telecommunications carriers etc. provide the information about the individual’s credit related activities to the central database which is managed by the credit reporting agencies. They then include all the information on the credit report of the consumers.

Credit score representation involves a critical investigation of the credit history of the numerous applications to decide what makes the individual’s more risky propositions as compare to others. Loan defaults, several credit enquiries on file, an individual’s credit shopping instances are some of the factors that are used to derive the credit scores.

Understanding Your Credit Ratings:

Credit scores can conspire on the chart to show the clear picture of whether the scores are high or low. Credit scores are basically a rank ordering tool that can be used to forecast the possibility of an adverse occurrence that is being recorded in an individual’s credit file in the next 12 months. Credit scores are dynamic and changes with the time. For instance, the credit score may change depending upon the nature and the amount of the loan while making an application with the lender.

Credit Scoring:

Credit scores basically fall in the range of 0 to 1200. The higher your score, the better your credit profiles will be and the better you will appear to the money providers. Here are the details about the credit score ranking that help you to understand the relative position and credit strength in the financial market:

833 to 1200 – Excellent

You are in the top 20 percent of the Australian population in which an unpleasant event could highly unlikely harm your credit report in the next 12 months. It signifies that your likelihood of holding a clean credit report is five times better than the average population.

726 to 832 – Very good

In this stage, you will unlikely bring upon an unfavorable event in the next 12 months. It signifies that your probability of keeping a clean credit report is two times better than average credit population.

622 to 725 – Good

In this stage, you are less likely to incur an unpleasant event that could damage your credit report in next 12 months. Your chances of keeping the clean credit report are better than average credit-active population.

510 to 621 – Average

Your credit score are average if your scores fall between the ranges of 510 to 621. It signifies that it is likely that you will incur an unfavorable occurrence such as defaults, bankruptcy etc. in the next 12 months.

0 to 509 – Below Average

You are at the bottom of 20 percent of the population if your scores are below 509. It is more likely that you will incur an unfavorable event such as court judgments, bankruptcy, defaults etc. in the next 12 months.

Credit Bureaus allow you to access your credit report to find out how lenders see your credibility when they ask for the copy of your credit scores as a part of judging your aptness for a loan.

How Does Credit Checks Affect While Lending?

Whenever any individual apply for any credit, the lender who is offering a loan have the complete right to check the credit status of an individual to find out the credit ratings. It will ensure the loan providers, whether the individual is suitable to grab this credit or not. If you have the clean credit records, you can usually get the credit. On the other hand, if you have lots of credit outstanding, your credit request may get refused.

Money lenders run the credit check only when the application is signed and received. Firstly, lenders ask the personal details from the applicant such as income, their liabilities and assets etc., and then make the judgment on the basis of these details. The decision of loan approval is based on numerous conditions which include verifying the stated income, but the chief condition is passing credit check.

If you have been rejected initially, then it does not affect your credit ratings because no formal application has been made. However, if you are approved and then after the loan provider proceed with the credit checking process and you are rejected, then this will recorded as a negative factor in your credit report. This is an adverse effect and can influence the prospective loan applications too. Therefore, if you know that your credit ratings are bad or below average and you might get rejected, you should not apply to get credit.

Consumers can also get the help to understand the effects of the Privacy Act Reforms on how credit scores operate in Australia.