How does an Equifax Score Affect Your Home Loan?

An Equifax Score relates to your personal credit report. Some lenders use it to assess your suitability for a home loan. Here’s how to make it work for you.

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How Does Your Equifax Score Affect Your Home Loan?

Every Australian’s credit report has an Equifax Score. This score compares you against every other borrower in the country.

Most lenders examine your Equifax Score when looking at your home loan application. The score is among several factors that can affect how much you’re able to borrow.

The Equifax Score Scale

The Equifax Score scale ranges from -200 to 1,200. It is very rare that scores go above 900 or below 200. In fact, the average Equifax Score in Australia is 550. This means that a score above 550 increases your chances of getting a home loan. Any score below this will lower your chances.

The score also shows how likely you are to have a default on your credit report within the next year. Those with the average score of 550 have about an 8% chance of having a default in the next 12 months. This goes up to 50% for those with Equifax scores of 200.

How is the Equifax Score Calculated?

The Equifax Score takes most aspects of your credit report into account. This includes the following:

Personal information: Your personal details factor into your score. Employment history also plays a role, as do your prior living arrangements.
Types of Loan: Each type of loan on your credit report carries a certain risk. A home loan is low risk. Payday loans and car financing carry a higher risk. Higher risk means a lower score.
Types of Lender: Much like with the loan type, the type of lender carries a risk. Major banks have a low risk while credit unions carry a higher risk. Again more risk makes for a lower score.
Defaults: Any defaults on your credit report lower your Equifax Score. A loan enters default status when you owe more than $150 and fail to pay it within 60 days of the due date. A default stays on your credit report for five years.
Enquiries: You generate an enquiry with every loan you apply for. Your credit report contains a list of every enquiry from the last five years. More enquiries leads to a lower Equifax Score. This is because lenders are wary about people who apply for a lot of loans.
Court Writs: Any court cases you’re involved in can lower your Equifax Score. Court writs are official documents from a court.
Court Judgments: You create a court judgment when you can’t come to an agreement with a previous creditor. Each judgment lowers the score.
Bankruptcy: Having either a bankruptcy or Part 9 agreement damages your Equifax Score for seven years.

Can I Access My Equifax Score?

You can contact Equifax to receive a copy of your Equifax Score. You will have to pay a fee ranging from $79.95 to $119.95 per year. In return, you receive credit reports, your Equifax Score, and other information.

You can also talk to a home loan adviser, They often find out your Equifax Score for you when exploring home loan packages.

Can I Improve My Equifax Score?

There are several things you can do to raise your Equifax Score. These include:

• Staying at your address for a long time.
• Not switching employers too often.
• Contacting Equifax to fix any mistakes you find.
• Making all loan and bill payments on time.
• Paying off any defaults you have.
• Not applying for credit unless you need it.
• Making sure any lenders you work with have strong reputations.

What Do Lenders Do With the Equifax Score?

Each lender has a unique formula for figuring out if they will accept a home loan application. Some will plug the Equifax Score into their formulas. Others may ignore it completely.

Those that do use it often place high priority on it. This means a low Equifax Score will damage your chances of getting a loan.

Some mortgage calculators can estimate how much the Equifax Score will affect you. You can also talk to an expert to find out what they know about specific lenders.

What Are Negative Equifax Scores?

It’s unlikely that you will enter the negative score range. Only serious credit issues lead to such scores.

Those that enter bankruptcy or a Part 9 agreement get a negative score of between -994 and -999. You will note that this exceeds the usual limit of -200. Equifax does this to separate bankrupt people from the rest of Australia’s borrowers. It also uses the figure to work out the risks attached to each type of person who enters bankruptcy.

Most lenders don’t use negative Equifax Scores in their calculations. This is because there are some questions about the accuracy of negative scores. As lenders get answers to these questions, they may start using negative scores.

What Should I Do Now?

This information is general in nature. A home loan adviser or Equifax itself can provide more details about your Equifax Score. Work with either to find out your score and prepare for how it may affect your home loan application.

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Alexi Neocleous

With over 20 years experience, Alexi has written extensively a wide cross section of financial topics. These topics range from financial planning, mortgages, property commentary and all points in between.

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