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Increasing financial uncertainty during the pandemic led to a 36% increase in Aussies checking their credit score in 2020 vs 2019. However, compared to Americans, 73% of Aussies still didn’t know their credit score back in 2019. Meanwhile only 35% of Americans claimed they had never checked their credit score. 

The confusion mainly lies in common myths about what a credit score is and how it can affect your ability to get a loan and on what terms. 

For SMEs it’s even more important to understand the implications of credit scores on their likelihood of being approved for business finance, especially since most lenders look at both personal and commercial credit scores. 


Why do business lenders check your credit score? 

As part of your business loan application lenders check your credit history. Your credit score helps us to better understand your ability to repay the loan. Based on this and other criteria, we then calculate a responsible loan amount as well as loan duration and interest rate. 


How we access your credit history 

At Lumi, we work with the credit bureau Equifax, which provides us with our clients’ credit history. Alongside other criteria, a good or excellent credit score is an indicator of lower risk, which can increase your borrowing capacity and allow for more flexible and affordable loan terms. 


So, what actually makes up your credit score? 

The Equifax Credit Score is a number between 0 and 1,200 using information from your credit report at a point in time. It includes records from credit providers as well personal information and assigns a score using an algorithm that gives weighting to different variables such as Repayment History, Credit Applications, Unpaid Debts or Defaults, Court Writs and Judgements, Credit Limits etc. It then compares your credit behaviour to the rest of Australia’s population. Therefore, your credit score is dynamic and will change over time depending on your credit behaviour. 


Knowing your credit score will give you more confidence when applying for a small business loan. If you want to check your personal credit score, you can request one free credit report per year from Equifax here


How can you improve your credit score? 

If you continue to pay your bills and debts on time each month, your credit score will improve. It’s also best to only apply for credit when you really need it. Find your provider of choice and limit the amount of credit applications since it can negatively impact your score. 


Here’s an example of how credit scores can impact your borrowing capacity at Lumi 

Credit Score  What it means
< 350 Not a bad start but your credit score needs improving before we can consider your application. 
> 400  Congrats! We are happy to consider your business loan application. 
> 600 Great score! You might qualify for a larger loan amount. 
> 700  Excellent! We might be able to offer you a larger loan amount on more flexible terms. 

This table is a guide only and does not guarantee a positive loan application outcome or a  certain loan amount.


Of course your credit score is only one of multiple important criteria we look at when processing your loan application. At Lumi, we are proud of our flexible approach meaning that we assess each application on a case by case basis while keeping the bigger picture in mind. 


If you are a small business and want to apply for a business loan or need help with your business loan application, please get in touch with our lovely team of experts here at Lumi


Your Lumi team 

Post Author: Vanessa Muller

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