Managing your credit history has never been more important for Australians and those moving to Australia.
Australia is changing to comprehensive credit reporting from 12 March 2014, which means more detailed information about you is readily available for lenders and banks assessing your loan application. Review these credit management tips
It would be very wise to check your official credit history if considering applying for a mortgage or refinance any time soon. Lenders in Australia already pay particular attention to bad marks on your credit history (Australia up until now has had a negative credit reporting system) and now that Australia is moving to a comprehensive reporting system much more can be discovered about your past credit history and how you have managed all your loans and repayments previously.
These changes bring Australia’s credit reporting more in line with the UK and US reporting systems, and will no doubt be assimilated into the automated loan assessment systems at Australian banks. All the major Australian banks use credit reports and ‘Credit Scoring’ assessments when your application is first received into the bank. If your application does not fit strict bank criteria, your application will initially be declined. It will then be up to you and/or your mortgage broker to explain and work hard to get the decision reversed, if this is possible.
What information is now reported about me?
*Up to 24 months repayment history: every late payment or missed payment will be visible on your existing and past credit. This affects credit cards too (be aware late and missed payments will affect future loan applications).
*The date every credit account is opened and closed
*The credit limit you were granted, if one was granted
*The enquiries you have made for a loan — so if you have shopped around and the evidence is here — this can be construed by lenders as financial stress (this will affect loan applications as well). Note that credit enquiries are also reported in the present system.
*Type of credit account applied for
Not all lenders will be reporting all the new data immediately, so there will be delays relating to certain lenders as they come into line with new regulations, and delays will also be caused by the introduction of new systems at Credit Reporting Agencies to cater for the new reporting.
What can I do to avoid nasty surprises when applying for a mortgage, loan or credit card?
- Be in the habit of requesting your own credit file history whenever you are about to apply for a mortgage or loan in Australia. You can buy your file at mycreditfile.com.au or ask your mortgage broker to obtain one for you, with your authority.
- Check your credit history report for incorrect records, or to consider how you might get the file updated or corrected where it is reporting incorrect information.
- Discuss the results with your mortgage broker before approaching the bank, since they will have a good feel for how the information is likely to be received and treated at the bank.
- Don’t panic if the results are not quite what you expected and you may need to take some preventative action before applying for a loan. Credit report entries can have mistakes and they can sometimes be amended to properly record the facts that support your situation. Be prepared – this action to correct errors is not immediate and may take some time. Hence an important conclusion here is that you must review your credit well in advance of a loan application.
- Make sure you keep up all your repayments of existing mortgages and personal loans and make them on time. In the past there has been less scrutiny or consequences for Australian borrowers not paying precisely on or before the due date. This has changed. Paying late is definitely counting against you and can ultimately prevent you obtaining your future home or desired property or business. Lenders in the current environment simply won’t accept late paying and defaulting borrowers.
Making sure you keep up repayments could mean changing your behaviour by setting up or changing direct debit arrangements for current loans and mortgages (when in the past for example, you may have made irregular manual transfers from your internet banking account). You may have been one or 2 days late regularly in the past and not thought anything of it; well from 12th March at least, you can no longer take a relaxed approach to repayments — and this applies not only to mortgages and loans, but to every credit card in your possession.
You may well need to get in contact with the lender when you are having trouble meeting the regular monthly repayment date, for example where due dates simply don’t lineup well with your pay day. You can no longer rely on the lender’s lenience in these situations, as being late will come back to haunt you if you intend to borrow in the future.
Daniel Shillito is a Financial Adviser, CPA and Expat specialist at Aussie Finance and Property Group, qualified both within Australia and throughout Europe. Views expressed here are his own. Daniel can be contacted at daniel@aussiefpgroup.com or Phone 020 3239 0479 or visit www.aussiefpgroup.com
