As you go down the process to buy a home it’s important to understand your credit rating and potentially how this could impact your ability to secure a home loan.
Lenders are naturally risk averse, and require solid evidence of your ability to repay your home loan before they will approve it. Even if you have all your documents in order, your income is healthy and your debts are low you may get tripped up by one other factor – your credit rating.
Here in Australia, credit ratings are held by independent credit rating bureaus such as Veda. If you fail to pay, or are regularly late with payments on items such as bills, credit cards, car or personal loans, your creditor can report you to Veda as a credit default and your ability to borrow money may be affected.
If you are unsure whether or not your credit history is clean and will satisfy the requirements for gaining a home loan, you can apply to a credit rating bureau for a copy of your history.
All consumers are entitled to obtain their credit file for free.
To request your credit file, follow any of the links below and fill out their request form:
Free reports usually take up to 10 working days.
Should your history show that a creditor has reported you as a credit default, and you still owe money on that debt, your first step is to clear the debt as quickly as possible and request that the creditor advises the bureau that the debt has been paid.
Maintaining a Clean Credit History
To acquire a home loan and buy your own home, you should do everything you can to protect your credit rating.
Here are some tips to help you achieve and maintain a credit rating that will please the toughest of lenders:
1. Pay everything on time! This includes bills, credit card repayments and personal loan repayment.
2. If you’re bad at remembering (and if you’re like me, have what seems like more important things to remember), keep a diary noting when all your repayments are due each month and add it to your to do list.
3. If you are using BPay or other payment methods that are not immediate in effect, ensure you make the payment transfer the day before the due date so it has time to reach the creditor.
4. If you need more prompting, you can set up SMS alerts with your creditors or download an app that reminds you in advance when payments are due. Setting up auto payments from your bank account is also a good tip and ensures you don’t have to remember when your bills are due. If you do this, ensure you have sufficient funds in your bank account at all times to cover them.
5. If for any reason you cannot make a repayment or pay a bill on the due date, speak to the relevant company or financial institution immediately. Let them know the exact date you can make the payment or, depending on your individual situation, request that they set up a payment plan so you can pay in set instalments. If an instalment becomes due and you cannot meet it, call the company or financial institution again and let them know immediately.
What to Do If You Find Yourself in Financial Difficulty
Even the most responsible and well off people can fall into debt due to circumstances beyond their control such as ill health, accidents and unemployment.
If you can see you are heading for financial trouble, and your debts are unsupportable, it’s vitally important not to hide your head in the sand and hope your troubles will go away! They won’t. Sell any liquid assets you can, seek help from family members or try to earn additional income with a second job, and keep in constant contact with your creditors to let them know your situation and what you are doing to improve it.
Falling into a debt crisis is very scary indeed, and something you need to halt at all costs. Many credit card companies and financial institutions have customer hardship departments you can speak with who can allow you extra time to pay, allow you to make interest only payments for a set length of time or assist you in other ways.
Free Services That Can Assist You
If you need further advice and support there are free financial counselling services located around Australia. You can talk to a phone financial counsellor from anywhere in Australia by ringing 1800 007 007 (minimum opening hours are 9.30 am – 4.30 pm Monday to Friday). This number will automatically switch through to the service in the State or Territory closest to you.
A financial counsellor can advise on the options available to you such as debt consolidation and can negotiate with your creditors on your behalf if necessary.
You should also visit the Credit & Investments Ombudsman website and the Financial Ombudsman Service of Australia website to find out more about your legal rights, such as what constitutes harassment by a creditor, what times they can call you and more.
If you have a dispute with a creditor, feel they have treated you unfairly or have wrongly lodged a bad credit rating against your name, you can also apply to these two government bodies for assistance and dispute resolution services.
Well, that’s the scary news!
Consider your good credit standing as gold and protect it fiercely using our tips. When the time comes to apply for a home loan you’ll be glad you did.