Module 3: Utilise your credit score to help you get a loan


Your credit score is an important number, and we’ve shown that time and time again across this course. But did you know that you can use your credit score to help you get approved for a loan?

In this module, we’ll explain how. Specifically, we’re going to cover the following:

  • When your credit score is used;
  • What impact does your credit score have when it comes to loans;
  • The different types of loans;
  • The different types of credit.

When is your credit score used?

Your credit score provides an indication to credit providers of your creditworthiness. Credit bureaus collect your credit information from lenders and compile this information onto your credit report. They use this information to calculate your credit score. The credit bureaus then make your reports available to companies (after your consent has been granted) to assess how risky of a borrower you are.

Therefore, your credit score is used each time you apply for credit. Your credit score is accessed by the company you have applied with, in order to see your creditworthiness and determine whether to accept or reject your application.

This is why your credit score is important when it comes to applying for a loan.

What can your credit score impact when applying for a loan?

Based on the above, you can be forgiven that your credit score only influences whether you’re accepted or rejected for a loan. However, your credit score can actually influence quite a lot of things, and some you might not be aware of!

Here are some of the ways your credit score can influence your loan application.

1. Whether you’re accepted or rejected for a loan

We’ve already touched on this above, but your credit score is one of the factors lenders consider when reviewing your loan application. A strong credit score will improve your application, whereas a poor credit score could work against you. Whilst your credit score isn’t the only factor lenders consider, it is an important piece. 

2. The interest rate you’re offered

You might be surprised to learn that your credit score can influence the interest rate you’re offered when you apply for a loan. This is because credit providers use interest rates as a way of protecting themselves against risk.

If you are deemed to be a risky borrower, then you will likely only be offered products with higher interest rates. That way, they get more money out of you quicker, so if you default on a repayment, they could already have a decent portion of the money they lent to you repaid.

3. The amount you can borrow

Your credit score can also affect how much you can borrow. As with most things, it all boils down to risk. The bigger the loan, the bigger the risk could be for the lender should you default.

If you have a below-average credit score, then a lender might decide that it’s not willing to offer you a high borrowing limit and reject your application or only offer you products with lower borrowing limits.

How can you utilise your credit score to get a loan?

With all of the above in mind, how can you utilise your credit score to get a loan? Put simply – the higher your credit score, the better chance you have of getting approved for a loan. Not only that, but you’re likely to get much better loans if you have an excellent credit score.

As we’ve already covered, your credit score isn’t the only ingredient companies look at when assessing your loan application. But if you have a strong credit score, then it’s likely that you’re doing well in the other areas they will also check. All of this together could help you get approved for the loan you need.

Different types of credit for low credit scores

As highlighted by the Oxford Dictionary, credit is “the ability of a customer to obtain goods or services before payment, based on the trust that payment will be made in the future.” 

If you have a below-average credit score, then your options might be limited when it comes to taking on a loan. But, that doesn’t mean there aren’t loans and finance out there for you. Below, we’ve put together some of your options.

1. No credit check personal loans 

In Australia, you can get a personal loan without the lender performing a credit check. This could be an option if you don’t have a credit history However, no credit check personal loans are very difficult to find, and the options are limited. Because these loans are riskier for the lender, no credit check personal loans will often come with higher interest rates and fees. 

2. Secured personal loans

When it comes to personal loans, there are two main types – unsecured and secured personal loans. A secured personal loan is a loan guaranteed by an asset, such as a car, motorbike, or something similar. The asset acts as security, which is where the name “secured” personal loans comes from. If you default on your loan, then your asset could be repossessed as a way to cover your repayments.

Because of the extra security, secured personal loans are generally easier to obtain from a reputable lender. They typically come with lower interest rates and fees as there is less risk for the lender.

3. Secured credit cards

Similar to a secured personal loan, a secured credit card is where your credit card is “secured”. This means that it’s guaranteed to be paid. How is this achieved? By having a cash deposit in your bank account that’s the same as your credit limit.