A great deposit and a great income is not enough to ensure you get the home loan that’s right for you. We show you how your credit rating can have just as much impact as your savings record and show you the steps you can take to ensure your credit file accurately reflects your ability to repay a home loan.

By Graham Doessel, Founder and CEO of MyCRA Credit Rating Repairs and www.fixmybadcredit.com.au.

There is more to applying for finance than wages and savings records. One of the key factors to home loan approval is your credit report.

What is a credit report?

A credit report is a report on your credit file status (or credit rating), held by one or more of Australia’s credit reporting agencies.  Your credit file is checked by the lender when you apply for a home loan. It contains all of your personally identifiable information as well as your repayment history, and is used to assess both the amount you are able to borrow and your ability to repay the loan.

Anyone who has borrowed money, or has established an account for services is credit active and will have a file in their name. This includes mobile phone plans, accounts with utility companies, rates accounts and of course loans of any kind.

What is defined as a ‘bad’ credit rating?

In broad terms, any credit defaults, court actions or writs, external administrations and bankruptcy are all recorded on your credit file and would be considered ‘bad’ credit history by most credit providers.

In this current economic climate defaults and even too many credit enquiries or applications for credit may be considered to be tarnishes on your credit rating.

How do I know if I have a bad credit rating?

If you are unsure what is on your credit file, it would be worth taking the time to find out.

There are three major credit reporting agencies in Australia: Veda Advantage – which holds the credit file of over 16 million Australians, Dun and Bradstreet and Tasmanian Collection Service.

You can write to or email one of these agencies and request a copy of your file.  If you are not in a hurry there is no charge to you but it will take 10 working days from application to receive this information.

What many people do not realise, is how easy it is to have a default slapped on their credit file.  If you fall into arrears on your account for more than 60 days (including rates, power and mobile phones) then the credit provider has the right to notify you of their intention to record this default against you on your credit file. Even if this bill is later paid, this ‘paid’ default still remains on your record for 5 years.

Will I always know I have bad credit?

NO! This is one of the key things we want all home buyers to know. Mistakes can and do happen, and it may not be until you are sitting in front of the bank getting rejected for a home loan that you find out you have bad credit history.

There are a great number of credit files which contain errors or listings on credit files which shouldn’t be there, so even if you think you have never paid a bill late, you may still have a bad credit rating. It is always worth taking the time to find out before you apply for a home loan.

I have found defaults on my credit rating, what are the consequences of this?

If you discover you have an adverse listing or ‘bad credit rating’, you will find it very difficult to find a home loan with a mainstream lender. Generally this problem will keep occurring for the 5 years the default is on your credit file. If you decide to enter a non-conforming loan, you may be up for tens of thousands more in interest repayments just over the first three years of the loan.

What can I do to fix my bad credit rating?

Once you have obtained a report there are three things to consider:

1. Check the accuracy of the report. If there are errors, be aware you do have the right to have errors rectified.  Likewise, if there are numerous strange defaults and or applications for credit that you don’t recognise – you would need to immediately investigate these and notify Police in case of identity fraud.

2. Check you were informed of any intention to list. Current legislation requires you to have been informed in writing of any intention from creditors to list you as a defaulting on credit.

3. Check the fairness of the listing. Only serious credit infringements should be recorded, or overdue bills in which 60 days have elapsed since payment was due.

How does a credit repairer work to repair my credit rating?

In many cases where people have attempted to dispute or remove the default themselves, they have come across difficulties and defaults have not been cleared. Most times the creditor will explain to the client that defaults DONT EVER get removed. The best they can do is mark the listing as paid (if it’s been paid).  This may not be sufficient to ensure credit is obtained with most lenders.

If you have a default, writ or Judgment that has errors or just shouldn’t be there – there is a good chance that My CRA can actually remove it – meaning your financial future is looking a whole lot brighter.

The credit repairer works with creditors to negotiate on your behalf and work for your best outcome based on the creditor’s compliancy with the current legislation. We will also look at any other extenuating circumstances to determine if there is an avenue we can investigate which results in having the listing removed.

Should I try to cut out all credit from now on?

Credit is not all bad.  In fact, not having ever taken out credit can harm your chances of obtaining a home loan just as much as having a bad credit rating.

However, we do advise you to be cautious with credit. Start small, for instance a mobile phone plan or store credit card and repay the account on time, every time.

What can I do to maintain a good credit rating?

1. Make all payments on time. This is the easiest way to ensure there are no discrepancies or defaults on your credit file.
If you are unable to make a payment on time, contact the creditor. They may be able to set up a payment plan for you until you get back on your feet. Soon overdue accounts that are as little as one day late will be recorded on your credit file as ‘overdue payments’ and will stay there for 2 years, so it is important to repay on time, every time to avoid bad credit.

2. Regularly obtain a copy of your credit file – once a year is recommended and this is free in Australia annually.

3. Keep credit card limits within a set budget. Don’t be tempted to accept the sky high limits some banks offer as it could encourage you to spend needlessly and blow out your budget. A lower credit limit is also better when lenders are assessing your ability to repay a loan.

5. Be aware of excessive credit enquiries. If you are not sure about your credit health, get it checked before applying for new credit so as not to rack up unnecessary credit enquiries. You do not record a credit enquiry when you enquire about your own credit file. Also, ensure you do not apply for credit all over town – and beware of filling any forms out online.  You should only apply for credit you have full intention of pursuing. Every application for credit will be noted on your file, but it does not say whether the application was approved or declined. It could look to creditors like you have been declined multiple times.Too many credit applications on a person’s file can hinder their chances of obtaining a loan. Some lenders are rejecting loans for as little as two enquiries in 30 days, or six enquiries within the year.

For help repairing your bad credit, contact MyCRA Credit Rating Repairs today 1300 667 218 or see more information here:

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