A.1 · At a glance
The pre-approval, in one card
Moneysmart’s page on buying a house describes a pre-approval in a few lines. Here they are, set out as a reference card in our own words.
| Question | What Moneysmart says |
|---|---|
| Who gives it | A lender. |
| What the lender looks at | Evidence of your current financial situation, to judge whether you could repay the loan. |
| What it shows | That you are eligible to apply for a loan up to a certain amount. |
| How long it lasts | 3 to 6 months. |
| Does it bind you? | No. It doesn’t commit you to a loan. |
| What it’s useful for | Setting a price range you can afford, and showing sellers you are serious about buying. |
Moneysmart’s own illustration of the price range: with a pre-approval of $600,000, looking at homes advertised at $700,000 is time poorly spent.
A.2 · The file
Where your credit file comes in
Alongside your finances, a lender can look at your credit history. The OAIC explains that when you apply for credit, a credit provider will ask a credit reporting body for a copy of your credit report to assess your creditworthiness, and that the request is then recorded on your report as a credit enquiry.
Creditworthiness, in the OAIC’s terms, covers three things: your eligibility to get consumer credit, your consumer credit history, and your capacity to repay. Credit reporting bodies use the information in your report to derive a credit score, and a credit provider may get your report with that score included.
What the entry records is narrow. The Privacy Act lets the file hold a statement that a credit provider made an information request about you, together with the type of credit and the amount of credit you sought in the application. Where the amount is unknown or can’t be specified, the credit reporting code lets the body record that an unspecified amount was sought. File B takes one entry apart.
A.3 · Before
You are told before the lender looks
A credit provider doesn’t need your consent to get your report for assessing your application. It must notify you that it will. The Privacy Act puts the timing at or before the moment the provider collects information it is likely to pass to a credit reporting body, and the first thing the notice must give is that body’s name and contact details.
The code adds that, where the likely disclosure is an information request, the notice must explain in general terms how the request may affect a credit score or rating the body calculates. In practice the OAIC says credit providers generally meet these rules by publishing a statement of notifiable matters and a privacy policy on their websites. File C lists everything the notice must cover.
A.4 · Several
More than one check, more than one entry
Each application for credit is noted on your report, and Moneysmart warns that too many applications in a short time can lower your credit score. The number of applications you have made is one of the examples Moneysmart gives of what a score is calculated from, alongside how much you have borrowed and whether you pay on time.
Any entries a pre-approval left don’t vanish when it lapses. The Act keeps the record of an information request for five years from the day the request was made.
A.5 · If no
If a lender says no
Moneysmart’s first step after a rejection is to ask the lender why, and it points out that lenders have to tell you when your credit report is the reason. That duty comes from the Privacy Act: a refusal of a consumer credit application based wholly or partly on information from a credit reporting body brings a written notice, and if the information was about you, the notice names the body. File D reads the notice line by line.
This guide describes the rules. Whether a pre-approval suits a particular purchase is a question a licensed financial adviser can answer.