You’re a busy young couple, both employed in good paying jobs, you’ve never defaulted on your loans, and you’re in the middle of saving hard for a home loan. Once you’ve got the deposit, you should be a bank’s dream customer right?
But if you miss paying a few bills, you may not be so lucky. A warning to all future first home buyers about the new laws around late payments that could see you denied that home loan despite all of your good financial deeds.
By Graham Doessel, Founder and CEO of MyCRA Credit Rating Repairs and www.fixmybadcredit.com.au.
Comprehensive credit reporting is about to be brought in to Australia. The Government has introduced new legislation into Parliament to amend Australia’s current Privacy Laws under the Privacy Act 1988, which includes the area of credit reporting.
In total there are 236 pages of amendments to the Privacy Act 1988 within the Privacy Amendment (Enhancing Privacy Protection) Bill 2012, which had its second reading in Parliament in late May.
These new credit laws are heralded as ‘revolutionising’ credit reporting in Australia, and in theory there are some great changes about to take place which should see more emphasis put on the much-neglected realm of credit reporting accuracy.
But not all changes will see more people given access to credit.
The most important change to be aware of is the addition of repayment history information to credit files. In layman’s terms, this means if you pay your bills even a bit late – the company can make a note of it on your credit file.
Late payment notations will be added to credit files by licenced creditors even if a bill is one day late. The notation will remain on your credit file for 2 years.
This extra information will be further used to assess credit risk by lenders. The Government says these reforms will lead to decreased levels of over-indebtedness but will also allow people who have a credit file listing the chance to ‘make up’ their negative listing with consistent positive repayment data.
In discussing New Zealand’s move to comprehensive credit reporting – which occurred in April this year, credit reporting agency and supporter of comprehensive credit reporting, Veda Advantage said it would be the pattern of late payments rather than one or two late payments that will stop someone from obtaining credit.
“A few hiccups should not hurt anyone’s ability to borrow money for a house, car or holiday in the future,” Veda Advantage New Zealand’s John Roberts told Business Day.
But lending criteria is quite subjective, too subjective to guarantee those ‘hiccups’ will not penalise potential borrowers. Initially lenders will probably err on the side of caution, particularly if the economy isn’t great and adopt a policy of exclusion rather than inclusion to the credit market.
Many people will take a big gulp when they think about all the bills they have paid late – often more through accident than not having the money – which could now see their loan declined. Who says how many is too many late bill payments? Would three a year be too many, or two in six months?
And who says when this information will start being collected? I think if you want credit in the future (most of us) you should be on your guard now, be vigilant with making payments ON TIME every time to ensure these late payment notations don’t stop you from getting credit in the future.
The big area of concern around late payment notations from consumer advocates – including myself has to do with accuracy. At the moment credit rating mistakes are pretty common. The other issue is how difficult it is for people to dispute a credit listing themselves, let alone a late payment notation.
NSW-based Consumer Credit Legal Centre Principal, Katherine Lane told the Sydney Morning Herald last year she was concerned over the fairness of listing a payment that is only slightly overdue or late for a good reason. She says credit reporting continues to operate as an “honour system” relying too heavily on the word of the creditor.
”My overriding concern is fairness,” Lane says of the exposure draft, which is now the subject of submissions to the Senate Finance and Public Administration Committee.
”Fairness is clearly a problem under the current law and they haven’t fixed the problem.”
With the new legislation will be laws which will allow you to dispute your credit file listing easier if you believe it has been placed in error. But the thing is it will still be up to you to know the law to be able to apply it to your own case, and this is where credit repairers will continue to be needed – to close the gap and help enforce the legislation that Creditors are bound to comply with.
To ensure you remain a good candidate for a home loan in the future, pay your bills on time, and prior to loan application order a free copy of your credit file to make sure you’re not going to be disadvantaged by someone else’s mistake. If there’s something you don’t agree with – contact a professional credit repairer to see if you would be a candidate for credit repair to remove credit rating errors.
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