Page 49 - Smart Money

Smart Money

expenses. An online calculator is going to give you an indication of
approximately how much you can borrow. They don’t work well for self-
employed people, who may not put in their taxable income, but rather
the cash they have received. They may have made $90,000 for the year,
but their taxable income may only be $25,000. That is going to give
them the wrong borrowing capacity, because they have used the wrong
income. At the time of writing, it is the banks’ policy to only use 80% of
overtime earnings. If you entered your total overtime income into one
of these generic calculators, the result will be a false borrowing capacity.
People often forget to put in all their debts – remember these are generic
and are not designed to take all scenarios into account.

Another thing to consider is that if you were to make a loan application
enquiry online through one of the banks websites, this may show as a
credit enquiry on your credit file. Similarly, if you do this on a broker’s
website, there is also a chance this could happen. It is not always the case,
however. We don’t conduct a credit enquiry on our website.

Key Point

Most people don’t realise that if they fill out a credit card application for
say Bankwest, and it gets declined, and then they do one with Westpac,
and then with CBA, every time they do one, it puts an enquiry on their
credit file, even if it has been declined. This will affect your credit score.

There is a very complex algorithm used to determine a credit score.
Basically a number or score is allocated to everything in your application.
If you have numerous enquiries on your credit report, then that reduces
your score. The more enquiries that are on your credit report, the less
likely you are to make a successful loan application.

Quite often banks will say your application has been declined because it
doesn’t credit score very well and they won’t give you an exact reason.
However, the most likely reason will be a large number of enquiries on
your credit report.