It’s a number of great importance, but you may have no idea what it actually is. Your credit score is determined by your financial history—factors such as how you have dealt with repayments, any outstanding debts you have, how many accounts you’ve applied for, had, and for how long.

If you have had a less than stellar relationship with your finances, the reality is that it will be harder to get a loan. The banks scrutinise individual credit scores in order to determine whether the applicant is a reliable borrower or will be more of a risk.

While you can’t erase your past, it’s worth knowing what you’re dealing with before you approach the lender so you can be prepared. You can request the details of their credit score from Equifax Australia (previously known as Veda). It’s free to receive a copy of this report annually, and generally takes up to 10 working days to be processed. If you need the report straight away, they can pay for a one day turn-around, which costs around $60. You can also pay this fee if you need another report within the year.

So what can you do if the report confirms worries, and the three digit credit score is low? While this isn’t of course ideal, it doesn’t mean you need to kiss the loan goodbye.

  1. Firstly, start working on improving your score (the higher it is, the better). Put a concrete plan in place to pay off the existing debt, chipping away at what you can.
  2. Make sure you’re vigilant with all of your repayments, even your phone or utility bills, so that you don’t end up with late fees or unpaid accounts.
  3. The bank will also consider other components, such as your income. The higher it is, the better, as they’ll presume that it’s more likely you’ll be able to meet the loan repayments. However if the mortgage is also high, this could work against you despite a healthy wage, due to the debt-to-income ratio.
  4. Finally, if you’ve changed jobs recently or frequently, this could impact your chances, as employment history is also analysed.

Applying for a loan with a shorter term can make it easier to get, and a large down payment is music to the ears of a lender. The amount of collateral and liquid assets you have will also be considered.

So while a credit score holds much weight, it’s not the only deciding factor when it comes to lending. Yet there are benefits to improving it, increasing your chances of success.