Home Debt How Does Your Credit Score Affect Your New Loan Application

How Does Your Credit Score Affect Your New Loan Application


How Does Your Credit Score Affect Your New Loan Application

You may not realize it, but your credit score may have a bigger impact on obtaining a new loan than you think.

First of all, what is a credit score and how does it work?

Your credit score is a number that is generated based on your credit file, which includes a record of your loans, your repayments, your income and more.

This is used to assess your reliability as a borrower. The higher your credit score, the less likely lenders will view you as a risk, and the better your chance of being approved for a loan.

Your credit rating is important as it can impact your borrowing power.

How can I tell if my credit score is ‘bad’?

To have a credit score, you need to have a credit file. The information in your credit file is used to calculate your credit score. The higher your score the better.

A higher score shows you are somewhat financially stable and have a history of meeting repayments on time.

For instance, the main credit score model, known as ‘Equifax’, ranges from 0 to 1,200, with anything below 622 resulting in a ‘bad’ score.

Depending on the range you fall in, lenders will have different perspectives on just how ‘bad’ your score may be. Although this system isn’t always the determining factor, it is generally left up to the lenders to decide if you are creditworthy or too much of a risk. It is also possible to be unaware of your bad credit.

It’s a good idea to regularly check your credit history.

What factors contribute to a ‘bad’ credit score?

Not meeting repayments

Continuously missing or delaying your credit card, car loan, or any type of repayments is detrimental to your credit score and will require more time to get back on track.

These defaults will show up on your credit file and will not look good to lenders when you apply for future loans.

Lenders may also choose to reduce your credit limit, or borrowing power, if the delayed repayments persist and are evident on your credit report. You can ensure no payments are forgotten by setting up automatic direct debits.

Keep in mind, continuous late repayments may also lead to other serious offenses, such as bankruptcy, that will negatively influence your chances of obtaining a loan.

Multiple credit applications

Each time you apply for credit or a loan, a note is made on your credit file. It is hugely important to keep the number of loan applications to a minimum, as having multiple enquiries can harm your credit score.

Lenders always check a prospective borrower’s credit file. If they see that you have applied for a number of loans over the last 6-12 months, they may consider you a risk.

Credit usage and debt

As well as multiple applications or enquiries, having various financial commitments can negatively influence your credit score. The more credit cards and personal loans you have, the harder it will be for you to access credit, and your borrowing power will subsequently be reduced. Lenders will typically assess your credit card limits and how much you currently owe before approving a loan application.


Your credit report may not always be accurate. It’s important to check your credit report every 12 months to ensure there are no errors that may harm your credit score and, in turn, will negatively influence your ability to obtain a loan.

How much influence does my credit score have in obtaining a new loan?

A lot! Your credit score can hugely impact your chances of obtaining a new loan since it determines how much you can borrow, how much you can afford to repay and what interest rate lenders are willing to offer you.

Credit scores are a big part of your financial life as they can affect any loans you apply for, such as a home loan, car loan and credit cards. Borrowers should be knowledgeable of how to improve and maintain their credit rating as there are factors that harm it.

Sofia is a passionate writer from Sydney. She also enjoys decorating houses and engaging in home renovation projects. That is why she loves sharing her experience and advice with other people through her writing. Besides this, she loves technology and gadgets which can help us get through a busy workday. Connect with her on Facebook and Twitter.


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