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.
Kristy Sheppard confirms that Mortgage Choice’s home loan advisors 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 their debt history, such bill defaults and applications for loans and credit cards, are on file and are made available to lenders and other credit providers, she says.
“There is a lack of knowledge about the existence of individual credit files, and that one or two debt-related mistakes, such as a missed or late bill payment, are often enough reason for someone to be denied a home loan,” she cautions.
“Younger borrowers are especially likely to be oblivious to 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 an 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 store cards, credit 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, defaults are preventable in many cases,” she says.
“If you’re unable to meet repayments it’s 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.”
Mortgage Choice suggests these top five tips for keeping your credit file 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.
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 auto transfers from your savings account.
3. Just say no.
Credit providers may tempt you to increase your limit. Resist unless absolutely necessary; don’t increase spending simply 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.
This article has been republished with permission from Your Investment Property magazine.