How do credit scores affect your personal loan application?

Personal loans can be a helpful financial tool, but it’s important to understand your eligibility before you consider applying for one. 

Whether you’re looking for a personal loan to help fund home renovations, rooftop solar installation or a family holiday, there are certain criteria you’ll need to meet to be granted approval.

Eligibility criteria tends to differ from one lender to the next, but typically requires the applicant to be:

• 18 years or older
• An Australian citizen or permanent resident
• Employed and/or earning a regular income
• A responsible borrower as indicated by credit score

While each of these criteria will have an impact on whether your personal loan application is approved, your credit score will also affect the interest rate you may be offered.

The reason being is that lenders tend to reserve their most competitive interest rates for their excellent credit borrowers, due to the reduced level of risk that they bring with them.

Borrowers with good to excellent credit scores will generally have a history of responsible credit behaviour, such as consistently paying down debts in a timely manner. In contrast, borrowers with poor credit scores will often have late payments or defaults recorded on their file, demonstrating to lenders that they may present a higher level of risk as a borrower. 

To balance out this risk, lenders may approve an application from a lower credit borrower but at a higher interest rate. Or they may ultimately decide the risk is not worth it and decline the application. There are a number of contributing factors that will bring them to their decision.

If you’re not sure what your credit score is, consider visiting RateCity’s credit score hub to check it for free.

How can I strengthen my application?

If you find that your credit score isn’t as high as you’d hoped, you may be wondering what your options are when it comes to improving your chances of being approved for your preferred personal loan product.

Working towards improving your credit score may not only help strengthen your personal loan application, but also your overall financial health.

However, boosting your credit score can take some time, and you may not have the luxury of waiting for it to increase before applying for a loan. In this case, you could consider strengthening your application in other ways to increase your chances of approval while you continue to work on improving your score.

• Consider a joint personal loan – Applying for a personal loan with your partner as a co-borrower could help strengthen your application. This is because the lender will assess both applicants’ income, credit scores, and other factors, with responsibility being shared by the two of you.
• Opt for a secured loan – You could choose to secure your personal loan on an existing asset, such as a home or vehicle, to reduce the risk to the lender and potentially bring down the interest rate you’re offered. Keep in mind, however, that you will risk losing your asset if you fail to repay the loan.
• Do your due diligence – Comparing your options and checking the fine print is a simple way to improve your chances of being approved for a competitive loan. Consider using RateCity’s personal loan comparison tables to see which products may be available to you, and consider reaching out to the lender directly or clicking through to their website for answers to any questions you may have.

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