How to Overcome Credit Score Issues

One thing learnt from years in mortgage broking: a declined application is not always the end of the road, and neither is a failed credit score.

There are several ways to navigate a credit score issue. It requires an understanding of which lenders credit score, how strict their scoring is, and how their individual systems work. Providing accurate information upfront significantly reduces the risk of a credit score issue from the start.

The more complete and accurate the information provided in a home loan application, the better the score is likely to be. It is important to list all assets, including items that might seem minor: cars, jet skis, caravans, boats, motorcycles, art collections, home contents, superannuation, and especially all transaction and savings accounts.

Some lenders and credit scoring systems may automatically decline an application simply because a savings account was not listed with a valid BSB and account number. Adding this detail to a declined application can sometimes turn a decline into an approval.

It is also important to provide a full three years of employment history and three years of residential address history.

Choosing the right lender from the start can dramatically impact an application. For those concerned about credit scoring, some lenders use less severe scoring systems, while others do not credit score at all. If an application has failed a credit score elsewhere, considering a lender that does not credit score may be an option, as they rely on a manual assessment approach. Making repeated applications with multiple lenders can worsen the credit score.

It is worth remembering that credit scoring is used not only by lenders, but by mortgage insurers as well.

A select few lenders hold what is known as delegated underwriting authority (DUA). This means they have the authority to sign off on mortgage insurance on behalf of the insurer, so the insurance company does not assess the application separately.

When facing a credit score issue, an option may be a lender that does not credit score and holds an internal DUA. Assessment then comes down to whether the application fits policy and makes sense. Bank policies differ significantly; where one lender fails to assist, another may welcome the application.

Steps that can help reduce an overall risk profile include:

- Avoid making multiple loan enquiries. - Limit the number of credit accounts opened, including credit cards and interest-free loans. - List all assets, including bank accounts with valid BSB and account numbers. - Increase the deposit amount, as lower loan-to-value ratios (LVRs) are subject to less strict scoring. - Maintain a stable employment profile and avoid changing employers around the time of application.

Credit scoring is not something to be feared. Most applications pass without issue, but understanding how scoring works helps applicants present a clear position and prepare effectively.