The Ultimate Credit Score Guide: For sole traders interested in van or truck financing

Are you curious about your credit score? It can be a little confusing at times, so let’s go over the important things you need to know about your score, including: why it matters, what goes into calculating it, and how to improve it if you have a bad credit score but you’re looking for van or truck financing…

Understanding your credit score

If you’ve found yourself wondering what a credit score is, you’re not alone.

It tends to be one of those things we’ve all heard about through various conversations, but where it’s used, how exactly it’s calculated, and how it impacts your life may have felt blurry in the past. Now that you’ve found yourself curious enough to read this article, however, let’s make sure you’ve got the confidence to talk about it with conviction the next time it comes up.

A credit score is a number that reflects your creditworthiness to lenders. It’s an indicator of how likely you are to repay any loans you take out with them.

However, it’s worth keeping in mind that your credit score isn’t the only thing lenders look at when considering you for financing. They may also give attention to your personal and employment history, the types of credit cards and loans you currently hold, and the types of accounts you carry.

What makes up your credit score?

Credit scores are generally based on several things including your repayment history, credit enquiries (past 5 years), any adverse events, length of credit history, personal information, credit limits.

Whether you have good credit or bad credit, your credit score can affect your ability to access loans or your ability to get an interest rate that you can afford.

It’s also worth noting that your credit rating and credit score are two slightly different things:

• Your credit rating is the ‘range’ that your credit score sits inside (e.g. below average, good, excellent, etc.).
• Whereas your credit score is the exact numerical score.

And one, or both of these, are components of your overall credit report.

Aside from your credit score, what else is in your credit report?

When you apply for a loan or credit card, you provide your lender with an application. Your lender then pulls your credit report and credit score from Equifax, Experian, and Illion – the three major credit bureaus in Australia.

A full credit report generally includes:

• Your personal information – Details used to identify you, like your name, gender, date of birth, driver’s licence number, employer, addresses (current and previous).
• Your credit rating – A credit report includes your credit rating (the ‘range’ that your credit score sits inside) and may also include your credit score, but not all credit reporting agencies include both.
• Credit products – All the credit products you’ve held within the last 2 years including: the type of product (e.g. credit card, home loan, business loan, etc.), the credit provider, the credit limit, opening and closing account dates, and any joint applicant names.
• Repayment history – Each credit product you’ve held within the last 2 years including: repayment amounts, the repayment due dates, how often you made the payments (and if they were on time), and missed payments (and if/when they were made up).
• Credit applications – Credit you’ve previously applied for including: the number of applications you’ve made, the total amount of credit you’ve borrowed, and any loans that you’re the guarantor of.
• Any financial hardship information – Financial hardship arrangements for credit products can appear on your credit report. Only the months the arrangement is in place will show on your credit report. If the arrangement is permanent, the month the loan is varied will show. No other details are included.
• Any defaults – Defaults on utility bills, credit cards, and/or loans can show on your credit report. Defaults are ‘non-payments of a debt’ to a service provider, and the service provider may report these to a credit reporting agency, but they have to notify you first that they’re going to do so.
• Any adverse events – Any bankruptcies, debt agreements, court judgments, or personal insolvency agreements in your name are also listed in your credit report.
• Credit report requests – Every time a credit provider makes a request for your credit report, it registers on the credit report. 

Your lender then compares your credit report and credit score to your past credit history. Lenders usually use a statistical formula to come up with a number that predicts how likely you are to repay your debt.

Why is a credit score important when you’re after van or truck financing?

When you’re after almost any type of financing as a sole trader, your credit score will play a significant part (if not the main part) in the lender’s decision making. So it’s important to be aware of how a credit score works.

The most obvious benefit of your credit score is that it can help you get approved for a van or truck loan. Having a good credit score makes it easier for lenders to offer you a favourable rate, because they feel more confident that you’ll be able to keep paying off the loan without any major issues. 

Keep in mind, however, that when you’re self-employed you’ll likely have to provide some alternate documentation when applying for commercial vehicle financing.

This could be because you don’t have some of the standard documents that lenders ask for, e.g. like regular pay slips. So you might be asked to show a couple of years of your business’ financial statements instead (e.g. like profit and loss statements and balance sheets). Each lender will be able to tell you exactly what they need from you so it’s best to ask them for a detailed list.

It’s also worth mentioning that getting financing for a vehicle will largely depend on you having a good credit score. Below, we cover off some basic ways to improve your credit score if you think yours isn’t up to scratch, but you can also find a more detailed article on how to fix your credit score here.

If your credit rating gets a thumbs up from your lender, and you get approved for a van or truck loan, you’ll get assigned a credit limit based on what the lender has assessed you can afford to pay back regularly.

Your credit limit is the total amount of money you can borrow from the lender.

It’s a good idea to have a few different vehicles in mind (or the same vehicle from a few different dealers or sellers) because your credit limit may be above or under what you were expecting and you don’t want to waste time looking for alternatives once you’ve been approved. It’s always good to have done that homework ahead of time.

A couple of added bonuses to knowing how your credit score works

A rarely talked about benefit of staying on top of what’s going on with your credit score is that it can serve to protect you against identity theft and fraud.

If someone is trying to steal your identity, one of the things they might attempt to do is get a credit card in your name. When your lender looks at your credit history, they can see if there are any red flags, such as missed payments or credit card charges that don’t match your name and address.

Knowing your credit score can also help you avoid predatory lending practices. Lenders are required by law to make sure borrowers can afford the loans they’re offering, but they can sometimes make deceptive offers and push them on unsuspecting consumers.

If you don’t understand how your credit score works, you might not know whether you’re being offered an unfair loan. And if you don’t understand how to dispute a credit report, you could end up getting stuck with an unfair loan where you might not be able to negotiate for better rates. 

How the three major credit bureaus calculate your credit score

Your credit score is calculated based on the information in your credit report. And the three main credit bureaus that calculate your score – Equifax, Experian, and Illion – do so with similar formulas, however each one has its own criteria and approach.

Equifax credit check

Equifax states that “your Equifax Credit Score is dynamic and changes depending on when the score is generated and in what circumstances it is requested“.

Equifax calculates your score as a number between 0 – 1200 and uses various factors in its calculations including, but not limited to:

• The type of credit provider making an enquiry on your credit report
• The type of credit and size of the loan or credit limit you have applied for in the past
• The number of credit inquiries and the pattern of enquiries over time
• Directorship and proprietorship information
• Age of credit report
• Personal details (e.g. age, length of employment, how long you’ve lived at your current residential address)
• Default information (e.g. overdue debts, serious credit infringements or clearouts)
• Court writs or default judgements
• Commercial address information (e.g. location and the length of time you’ve been at your current business address)

You can get a copy of your Equifax free credit report here.

Or check out our article with step by step instructions on how to do a credit score check with all three of the credit bureaus.

Experian credit check

Experian says that “your Experian Credit Score is calculated applying a statistical algorithm that uses past events to predict future behaviour“.

Like the other bureaus, they don’t reveal their exact algorithm, but they do mention that some key attributes they use to generate your credit score are:

• The type of credit provider who have made enquiries on your report
• The type of product you’ve applied for
• Your repayment history
• The credit limit of each of your credit products
• The number of credit enquiries and any negative events

Experian also mentions the following could have a negative impact on your Experian Credit Score:

• Large number of credit applications in a short space of time
• Missed payments
• Defaults
• Open accounts with debt collection agencies
• Short term credit (e.g. payday lenders)
• Court judgements
• Bankruptcy actions

You can check your own Experian Credit Report here.

Or read our article with step by step instructions on how to do a credit score check with all three of the credit reporting agencies.

Illion credit check

Even though Illion is considered one of the three major credit reporting agencies in Australia, information on how they calculate your credit score is the trickiest to come by.

However, in a very thorough Canstar article, Illion is reported to have said that “your credit score is determined by how reliably you pay your bills, meaning people who have evidence of consistently paying their bills on time will generally have a higher credit score than those who frequently default on their payments“.

In the same article, Illion is also quoted as saying that “the following events could have a negative impact on your credit score:

• Failing to pay your bills
• Paying your bills late
• Applying for credit too often
• Your partner defaulting on joint debt“

If you’re keen to see a free credit report from Illion with your credit score you can do so here.

Or you can check out our article with step by step instructions on how to do a credit score check with all three of the main credit bureaus.

What’s a good credit score?

If you’re a sole trader or small business owner wanting to get a truck loan, van loan, or other types of commercial vehicle financing, you should know what lenders recognise as a good credit score.

As we mentioned earlier, each of the three main credit bureaus have slightly different ways of scoring your credit report, but all three generally use a five-point scale that plots your score somewhere inside one of the following brackets – below average, average, good, very good, and excellent.

What’s a good credit score according to Equifax?

Equifax suggests that credit scores falling inside their ‘very good’ and ‘excellent’ brackets are suitable for applying for loans, while scores below these may need to undergo credit repair.

Credit Score	Equifax rating
0 to 459	Below average
460 to 660	Average
661 to 734	Good
735 to 852	Very good
853 to 1,200	Excellent

It’s worth noting that the above is simply an Equifax suggestion, and your lender may consider scores outside of Equifax’s ‘very good’ and ‘excellent’ brackets sufficient for financing.

What’s a good credit score according to Experian?

While Experian’s credit scoring falls within the five bracket range, your Experian Credit Score is a number between 0 and 1,000, not 0 and 1,200 like with Equifax.

Credit Score	Experian rating
0 – 549	Below average
550 – 624	Fair
625 – 699	Good
700 – 799	Very good
800 – 1,000	Excellent

Reminder: Your credit score is dynamic, in that it can go up and down over time because it’s constantly influenced by your financial behaviour. This is why it’s important to regularly be informed about your credit score.

What’s a good credit score according to Illion?

Much like your Experian Credit Score, your Illion score is a number that falls between 0 and 1,000 – with higher scores suggesting healthier credit ratings than lower scores.

Credit Score	Illion rating
1 – 299	Low
300 – 499	Room for improvement
500 – 699	Good
700 – 799	Great
800 – 1,000	Excellent

Note: Illion also has something they call a ‘Zero score’ which they say indicates that “…there’s something negative on your file, such as a payment default. You might have a court judgement or bankruptcy. But you don’t need something that drastic to push your score down – even late payments look really bad to companies you want to get credit from. You probably have a few credit enquiries on your file, which means you’ve applied for credit and may have been declined“.

Tips for improving your credit score

Now that you know what the main credit reporting agencies consider a good credit score, and you may have even requested your credit report from one (or all) of them, you may not be happy with where your score currently stands.

If this is the case, there’s good news and not so good news…

The not so good news about improving your credit score

There’s no quick fix when it comes to improving your credit score because it’s a result of your financial history and some entries will stay on your credit report for years.

Here are some general time frames for how long information stays on your credit report:

• Repayment history – 2 years
• Credit accounts (any open credit accounts and accounts that have been closed in the past two years) – 2 years
• Credit enquiries – 5 years
• Defaults and/or clearouts – 5 years
• Writs, summons, court judgements – 5 years
• Serious credit infringements – 7 years
• Bankruptcies, debt agreements or personal insolvencies  – varying time frames depending upon when the bankruptcy, debt agreement or personal insolvency agreement was entered into and when it ends
• Identity information (including your name, date of birth, gender, driver’s licence, and address history) – held for the life of the credit report

However, even though you can’t improve your credit score overnight, the good news is that with time and consistency, you can increase your credit score.

The good news about improving your credit score

Now that you understand credit reporting, how your credit score works, and what lenders look at when it comes to your van or truck loan applications, you can work on your credit score strategically to improve it, and set yourself up for a better chance of getting approved and being offered a good rate.

Some key things you can do to improve your credit score:

• Make payments on time – Your payment history is one of the major factors that affect your credit score. For some people, it’s the most significant part. If you want to improve your credit score, staying on top of your repayments, and making sure they’re done on time, is especially favourable.
• Space out your credit applications – Applying for credit with a lender results in them looking at your credit report which can register as something called a ‘hard enquiry’ meaning it shows up on your credit report. If you have lots of applications within a short amount of time, lenders and credit providers who look at your report might think you’re experiencing financial difficulty and reject you for a loan. That’s why spacing out your credit applications can work in your favour.
• Consider keeping credit accounts open – The length of your credit history can positively contribute to your credit score. The longer you’ve had a credit account open, the more data there is to use to calculate your credit score – especially if it demonstrates that you can consistently handle a line of credit. So, where appropriate – and where it doesn’t cause you any financial distress – consider keeping the credit account open.

If you’re keen to go deeper, you can dive into an expanded article on how to fix your credit score here.

Alternatives to getting van or truck financing

As a sole trader or small business owner, you’ve likely got the tenacity and grit to improve your credit score on your own – giving yourself a better chance of getting approved for a loan.

However, it’s also very likely that the biggest thing standing in your way is that you simply don’t have the luxury of time.

If your work is lined up now and you need your own vehicle to get it done, then you need a more immediate solution.

Van or truck loan alternative 1: Use savings

Vehicles don’t come cheap. And work vehicles could carry additional expenses depending on the industry they’re used in and any additional equipment they require. However, you may have some savings tucked away which could cover the cost of the truck or van you need for work. You may also have someone close to you who could chip in with their savings to help you out.

If you do go down the path of using the savings of someone who’s agreed to lend you theirs, the most important thing is to make sure you have clear terms laid out for paying them back what you owe. Having a legally binding contract in such a scenario is highly recommended to avoid things getting messy down the track.

Van or truck loan alternative 2: Get a rental

There are lots of rental companies on the market that have vans and trucks available to rent out and use for various purposes. Places like Avis, Hertz, and Budget.

While many of these companies will let you use their vehicles for work purposes, there are also several limitations to keep in mind when hiring from them, such as:

Van or truck loan alternative 3: Rent To Buy

ARG’S Rent to Buy solution is a leading alternative to van or truck financing – especially for sole traders and small businesses with less than perfect credit scores. 

It’s designed to give you instant access to the vehicle you need – allowing you to start earning money straight away, while giving you a path to buying the truck or van outright. There are also no loans involved, so you’re not pulled into financing before you’ve even had a chance to get out of the gate. No loans means no fuss around your credit score.

And the good news is that, with Rent To Buy, ARG does all the heavy lifting for you upfront.

Find out more about ARG and how you can Rent To Buy the work vehicle you need.

You’ve got to understand your credit score if you’re planning on truck or van financing

For sole traders and small business owners interested in van or truck financing, credit scores are very important as lenders will use your credit score, and other factors from your credit report, to determine whether or not they approve you for a loan.

In general, the higher your credit score, the better chance you have of qualifying for a van loan or truck loan. And if you do qualify, the better chance you have of receiving a competitive rate.

If you’re not satisfied with your credit score, or you’ve been told by a lender to improve it in order to give yourself a better chance of getting approved, there are ways you can do that but you need to be aware that they’ll take time.

The good news is that there are also alternatives to truck or van financing, so you’ve got other options which aren’t heavily dependent on your credit score like loans usually are.

You can bookmark this article for future reference should you need it, and if you have any sole trader or small business friends who might find it useful we also encourage you to share it with them.

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Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstance before acting on it, and where appropriate, seek professional advice from a finance professional such as an adviser.