When you begin the home loan application process, you often get swamped with complicated documents that require deciphering. At Melbourne Finance, we understand that sense of documentation frustration because we have experienced it ourselves. Therefore, we want to make sure every Melburnian understands the lending process.
A key part of understanding that process is how to read your credit report, so here is a guide to help you understand.
The difference between a credit report and a credit score
A credit score is like a school grade. It is the representation of how well you have ranked on a particular set of circumstances. A score above 620 is considered a good score, while a score between 800-1200 is considered excellent. According to Money Smart, a credit score is based on the total money borrowed, the credit applications made, and whether you pay on time.
The credit report is the details of your score, it consists of
- Personal Information
- Credit Products over the last two years
- Repayment History
- Defaults on bills, credit cards and loans
- Credit Applications, whether they are accepted or rejected.
- Bankruptcy
- Credit Report Requests
This provides lenders with a better picture of your credit score, so they can consider your lending options appropriately.
Comprehensive Credit Reporting (CCR)
In 2014, Australia switched reporting systems from a negative reporting system to a positive reporting system. This reporting system looks to help prospective homebuyers secure the best loan. Besides providing people with a more accurate picture of their assets, it assists lenders in making informed decisions and processing home loan applications faster.
Unlike the last system, positive behaviours are registered such as paying on time to further improve the picture, which has seen 52% of Australians credit scores increase. Like any government initiative though, it was rolled out carefully and only came into full effect in late 2019, so some lenders will still be getting used to it.
One of the best things about CCR reporting is that it comes with a series of codes set by the Australian Credit Reporting Standards (ARCA). These are attached to the report to help lenders skim the report and prepare loan applications.
What does each CCR code mean?
- 0: Account paid on time
- 1: 0-29 days overdue
- 2: 30-50 days overdue
- 3: 60-89 days overdue
- 4: 90-119 days overdue
- 5: 120-149 days overdue
- 6: 150-179 days overdue
- X: 180+ days overdue
- C: ‘Account is closed’
- A: ‘Not associated’
- R: ‘Not reported’ – the bank or credit provider did not provide payment history for this period, which is a fault with the credit provider, not necessarily you as an account holder.
- P: ‘Pending’ – purchases made with a credit or debit card that are pending (for up to 5 days) but have been deducted from your available funds until the merchant finalizes the payment.
- O: ‘Other’
- T: ‘Transferred’ – a balance transfer of your debt with one lender to another usually to save on interest repayments on a credit card or store card.
The advantages of CCR
- We can better estimate your borrowing power and secure your dream home.
- There are no guestimates about what your financial position looks like.
- There is no immediate shut door response, and we get to know you better throughout the home loan process.
- We can tailor the product to better suit your financial needs.
- It helps us differentiate between borrowers who would appear to have a similar rating on the negative reporting system and from borrowers who may be overstretching their credit limit.
Choose Melbourne Finance for your next home loan.
Our team members are people’s people who want to help you secure the best home loan achievable. Using the CCR reporting method has allowed us to provide better home loan options to our clients and help them secure a loan to build or buy their dream home. If you want to get started on your next home, get in touch with us for a friendly chat by filling out this contact form.