Did you know that most of your transactions are recorded on your credit file by credit reporting agencies like Equifax?
Around 85% of Australians have never accessed their credit file (Experian Australia) which means that you may have a black mark on your credit file and not even know it.
Well, making late payments on things like personal loans and credit cards can have a massive effect on your ability to borrow. Missing these payments altogether is known as a default and it can limit your choice of lenders.
Even if you haven’t had a look at your credit file before, try to avoid these six things that could damage it:
- Missed or late payments: If you make your loan repayments even a few days late then it will have a negative effect on your credit file. A single missed payment will stay on your credit file for five years.
- Too many enquiries: An enquiry is added to your credit report every time you apply for credit, whether it’s a personal loan, credit card or home loan. Each enquiry will remain on your credit file for the next five years. If you make more than two enquiries within six months, most lenders will see you as a high risk borrower and may decline your loan application.
- Judgments: If you’ve lost a case in court and are required to pay monetary or non-monetary compensation to someone, then it will be registered as a judgment on your credit file for the next five years. Lenders tend to view judgments as a serious drawback on your credit file. So if you get involved in a court case, make sure you win!
- Bankruptcy: Bankruptcy is a legal status where you cannot repay your debts. If you’re currently registered as bankrupt then you can’t get a home loan. The record will remain on your credit file for 7 years after which you’ll be discharged bankrupt and may be eligible for a home loan with a specialist lender.
- Unpaid bills or taxes: If you haven’t paid your electricity or utility bills for the past two months then it will be registered as a default on your credit file. These defaults can stay on your credit file for up to 7 years and can have a negative effect on your credit score.
- Too many ongoing debts: Taking out too many loans shows that you’re over committed. Most lenders won’t even consider your mortgage application if you’re barely managing to pay your existing debts.
How can I avoid getting an adverse credit file?
To avoid having any of the above factors in your credit file, you should:
- Pay all your debts on time, every time.
- Don’t apply for a lot of loans or forms of credit such as credit cards or car finance at the same time.
- Talk to your lender or credit provider if you feel you won’t be able to pay the full amount on time or if you need to change your address or contact details.
What if I already have bad credit?
If you already have bad credit, don’t worry, you may still be able to get a home loan.
The key is to have good reasons and evidence for your debt problems to present to the lender in your application. A specialist mortgage broker can help you do this as well as highlight the positive aspects of your situation.
It should be noted that with lenders slowly moving to Comprehensive Credit Reporting, they’re sharing a lot more information about you, such as your repayment history. If your credit file isn’t up to scratch, some of these changes will actually help you.
For example, you may have been late with your car finance payments but if you’ve been making your loan repayments and paying your other bills on time, it shows you made a mistake in the past but, overall, you’re now managing your finances well.
If you want help qualifying for a home loan, call us on 1300 889 743 or enquire online.
We have strong relationships with the major banks and some of Australia’s largest lenders. This means that we can get loans through that would normally be declined.
If we can’t qualify you with a major lender, we can talk to a specialist lender that will take a common sense approach to your situation.