A COLLECTION of data is compiled and recorded to provide lenders with a statistical profile – a credit score – that could make or break a loan application, Smartline Personal Mortgage Advisers State manager David Devenish says.
“Credit scoring could best be described as a statistical judgement.
“Over many years of collecting data from file records, lenders are able to clearly see the type of loans that go into default – these statistical references show patterns of account conduct that help the banks to avoid risky lending.
“Credit scoring is one of the many policy innovations we have seen in the lending environment in recent times and the need for advice and guidance from a mortgage adviser comes to the fore.”
Mr Devenish said every field on a loan or credit application is recorded, collated and scrutinised, so borrowers need to ensure they complete the loan application thoroughly and understand what they are doing.
“Only a very select few within a bank’s credit department know what goes into determining how that bank determines borrowers’ credit scores,” he said
“Literally, it can be a case of ‘computer says no’ – for borrowers who have had their loan declined based on their credit score. However it can be difficult to identify the reason why. Mortgage advisers see this all the time, so they can look at patterns and make a call about why that might be the case.”
Mr Devenish said that while the credit scoring formula was a tightly held secret, a benefit was that it was less exposed to manipulation.
“However, borrowers who receive decline notices will want to know how they can improve their credit score.
“Borrowers can consider a few fundamentals such as ... maintaining a good length of employment or continuous employment.
“And, with every field of an application under such heavy scrutiny by the lenders’ systems, it’s important to seek the advice of an expert who is familiar with lenders’ requirements to ensure you have the best chance of securing finance.”