A lot of people request help with credit repair when they are in the process of buying a home.
Many of us don’t know about our credit rating and its importance until we apply for a mortgage. And this is precisely the point where many of us come unstuck.
It all looks good in the beginning – our broker advises us how much we should be able to spend based on our income and savings.
We plough through the painful and time consuming process of looking at houses and dealing with real estate agents, until we find a home that is perfect.
We spend hours negotiating the right price. We are finally successful and the contract is drawn up, pending finance approval.
Then we go home and call the insurers, the solicitor and the building inspector. We calculate distance from schools and public transport, we talk about whether the lounge suite will fit and spend hours discussing colours and whether we can afford to renovate the downstairs bathroom yet.
Until we get the phone call no one wants to receive…
“Um…the bank has conducted a credit rating search and I am afraid you have some defaults on your credit file. Your finance application has been declined,” our broker informs us sullenly.
“What!!!!” we scream “What defaults? How can we have a bad credit rating? We have always paid our bills on time! This can’t be happening,” we say.
And then we check our credit file. We find out that the phone account we thought we had closed down 2 years ago before we moved still had money owing and the creditor has listed it as overdue on our file. Or the mistake on that electricity bill we thought we’d sorted out is still there – and now it’s a default on our credit file.
Not only are we devastated from losing the home we had worked so hard to secure, but home ownership looks to be a distant memory for the next five years while our credit file has these defaults sitting on it.
We have no idea how to go about fixing our credit rating, and when we call the credit reporting agency – we are told that defaults never get removed. If they were paid they can be marked as paid and that’s about it.
We’re disappointed, we’re confused and we’re angry.
Maybe we are offered the opportunity to purchase with a different lender (non-conforming lender) where the interest rates are sky-high. But we’re so desperate to get the house, with so much effort put in both emotionally and financially – we might just go for it…
The truth of the credit repair business is this – most of the clients we deal with are in this kind of situation. The nature of credit reporting is that there is much opportunity for human error and these errors are usually not uncovered until we go about checking our credit file.
Unfortunately in Australia, most of us don’t check our credit file at all until we apply for credit and the bank does it for us. It is only when we are refused credit that we may even understand what a credit file contains.
It goes without saying, the best way to maintain a clear credit file is to pay our bills on time. But that doesn’t always ensure our credit report returns clear. Just ask the many of us who have had the unpleasant task of finding out we have black marks on our credit file that just shouldn’t be there.
In fact, the last study conducted on credit files and the possible errors they may contain was done in 2004 by the Australian Consumer Association (now Choice Magazine). The study revealed that as many as 34% of the subjects surveyed potentially had errors on their credit file.
“In our view, there are serious, systemic flaws which are leaving an increasing number of Australian consumers vulnerable to defamation, mis-matching and harassment,” the report said.
The onus is on us to check our credit report for errors. We should make checking it a yearly event. Under current legislation, it is actually free for Australians to obtain a yearly credit report. All we need do is contact both the major credit reporting agencies: Veda Advantage and Dun and Bradstreet and also Tasmanian Collection Service (if you are in Tasmania). These credit reporting agencies are required to send us a copy of our report for free within 10 working days.
If we are thinking of buying a house, we should conduct a search on our credit file while we are still saving for a deposit. Then we can go about repairing any errors prior to applying for finance. This will not only help us to get the house we want, but also to ensure we have access to the best loan for our needs.
It is also important to know we should only apply for credit we have every intention of pursuing. Ever enquiry/application that is made to creditors is recorded on our file. Unfortunately legislation currently does not allow for positive credit reporting (the laws are proposed to change). So a creditor checking our file has no way of knowing whether we would have been approved for all those loans. They could easily have been declined.
So for those of us house-hunting now – we should stop what we’re doing and check our credit file. It might save us time, disappointment and money to sort a black mark out while the situation is not urgent.
And if everything is as it should be? Then we’ve not lost a thing, but we’ve gained the confidence that comes from having our finances truly in order before we buy a house.
Visit www.mycra.com.au for more information.
Image: Salvatore Vuono / FreeDigitalPhotos.net[/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]