Credit Scores & Your Character - Why Both Matter.
“Lending is not based primarily on money or property. No sir, the first thing is character.” J.P. Morgan
Character is arguably the key component of the Five C's of Credit, and is best summarised as a borrower's willingness to meet their credit obligations. In other words, how trustworthy and reliable are they?
In the past, character was largely assessed on qualitative means, though with the advent of technology it is a different game now.
You may have heard about credit scoring in the context of your finance application. A credit score is a statistical number that, based on credit history, indicates your credit worthiness.
Your credit score in Australia typically ranges from 0 to 1,000 or 1,200. The higher the score, the more financially trustworthy a person is from a lender’s perspective.
The score is driven by many obvious factors (your previous conduct, frequency of application etc.) though also by other demographic factors such as age and where you live. This science has been around for a while now, but we are seeing this being applied at new levels in the future, especially with new technology.
One of these is Comprehensive Credit Reporting - which allows more details of the credit you have (e.g. actual loan terms and repayments) to be included in your report. Though it goes further than this, and financiers are building their credit decisioning to new levels. Again, credit scoring is not new but is now based on deeper demographic data too, which allow a credit provider to look at high volume historical behavioural data, to produce a more sophisticated real time credit assessment.
Accessing My Score & Security
If you are actively needing credit - it is vital that you understand both your credit rating and the factors that impact your score too.
Moreover, in the light of the recent and ongoing cyber security breaches - it is important to check your credit report on a routine basis to ensure there have been no unauthorised enquiries or worst case use of identity.
The link for accessing your credit report, normally free is below:
There are also other applications - an example of one is called Credit Savvy, they not only generate an instant credit score but can also put a ban on credit checks for 21 days.
Behavioural Assessments & Credit Segregation
This is a blunter means of credit decisioning, based on meeting exacting criteria. It allows financiers to target a direct segment of a market. This has become popular with certain business finance products, take Equipment Finance for example. Say you purchase a new vehicle for business use, and you meet the following criteria:
✓ Have been in business for 2 years and have a registered ABN
✓ Have a clear credit history
✓ You own a residential property
✓ Clear ATO Tax Portal
You will generally get an immediate approval without the need to supply verifying income documentation. In addition, the rate on this finance facility may be cheaper that if you do not meet the criteria and need to supply all other documentation.
More information?
Contact MCP:
E - mcpnews@mcpgroup.com.au
W - www.mcpfinancial.com.au
T - (03) 9620 2001