Have you applied for a personal loan or credit card recently? You may be in for a shock when you make a home loan application.
This week a client had their home loan application declined simply because they had made too many credit enquiries over the past 12 months. The client was unaware that making such credit enquiries would have such a huge impact on their credit report and so did not bother to tell us what they had been doing.
The client almost lost their house. Thankfully we found a lender that would lend to them. But the rate was nowhere as good as we could have got for them and they lost a lot of sleep in the process.
What is Credit Reporting?
The first thing a bank will do when assessing a loan application is run a credit report on you. From 1 July Australia will a new system of credit reporting known as Comprehensive Credit Reporting (CCR), that makes it easier for lenders to make a comprehensive and balanced assessment of an applicant’s credit history. Its impacts are already being felt by would-be borrowers.
The credit report now includes information about current accounts you hold, what accounts have been opened and closed, the date that you paid any default notices, and how well you meet your repayments to the banks and utilities.
What does a Credit Report Look Like?
The higher the credit score the better:
Excellent: 833 – 1,200
Very Good: 726 – 832
Good: 622 – 725
Average: 510 – 621
Below Average: 0 – 509
This system is similar to those in other OECD countries. It’s common practice in the USA and UK for consumers to use their positive credit rating as leverage when looking for a loan of any sort, and CCR will allow for Australians to do the same (provided they have a good credit rating, of course).
In future, those with good credit reports will be able to negotiate with the banks for a better deal.
What affects my credit rating?
The list of things that can affect your credit report. It’s pretty lengthy, but here’s a rundown of some of the ways you can help or hurt your credit rating:
|Good for Your Credit Report||Bad for Your Credit Report|
|Paying bills on time||Applying too often for credit cards or loans|
|Paying off outstanding loans and credit card debt||Making late payments on your credit card or loan|
|Making your monthly repayments on time every month||Bills or payments for at least $150 that are overdue by 60 days or more|
|Having an available credit limit much higher than your usual credit balance||Getting multiple balance transfer credit cards one after another|
|Hanging onto “good” credit accounts where you have faithfully made repayments on time for several years||Not optimising Direct Debits for quick, regular payments|
If you want a good deal when it comes to getting a loan, you need a good credit report first. If you would like to know how to boost your credit report before applying for a loan, please contact me on 1300 30 67 67.