Did you know that just one forgotten electricity bill or unpaid mobile phone invoice could make or break your home loan application?
Did you also know that an unpaid bill of just $100 or more can smear your credit file for up to seven years?
The fact is, it doesn’t take much for your credit file to end up with a black mark against it.
Mortgage brokers meet with would-be borrowers on a daily basis who are shocked to learn that their credit file holds details that could see their home loan application declined.
Many of them are unaware that certain aspects of the debt history, such as bill defaults and applications for loans and credit cards, are on file and are made available to lenders and other credit providers.
There is a lack of knowledge about the existence of individual credit files which, through only one or two debt-related mistakes like a missed or late bill payment, are often enough to have a home loan denied.
Younger borrowers are especially likely not to understand the importance of keeping their credit file ‘clean’. Defaults and credit applications are usually displayed loud and clear to lenders researching a potential customer’s suitability for the ability to repay a home loan.
Borrowers need to be aware that if you have been active in applying for credit within the last five years – such as credit cards, store cards, personal loans and mobile phone contracts – then all of this information will be stored on your credit file.
If you have not met deadlines with bills or other debt payments in that time, then that will also be kept on file for five to seven years.
The good news is that defaults are preventable in many cases.
If you are unable to meet repayments it is up to you to contact your lender or credit provider and make arrangements to pay the outstanding balance, before a default is noted on your credit.
Follow the five tips below for keeping your credit clean:
1. Pay on time
Pay your credit cards, bills and personal loans before the due date. Keep utility bills on the top of your ‘to do’ pile and file them after paying, to be sure you don’t fall behind.
2. Automate.
Missed and late payments are one of the most common defaults on a credit file, so a good way to ensure you don’t miss one is to set up automatic transfers from your savings account
3. Just say ‘No’
Credit providers may tempt you to increase your limit. Resist unless it is absolutely necessary. Don’t increase just because you can.
4. Don’t go overboard
It’s easy to go over your credit limit and lose track of spending, which is when defaults are more likely to appear on your credit file. Make sure you have a budget and stick to it.
5. Pay more than the minimum
Only repaying the minimum never pays off: you’ll be in debt for years and you’ll spend thousands in unnecessary interest. Making repayments above the minimum amount will help you work towards paying off your balance and avoiding tarnishing your credit file.
You can order a free copy of your credit file by clicking here.
Source: www.yourmortgage.com.au
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