7 deadly mistakes with credit

Media Release

The 7 deadly mistakes with credit that could harm your home loan application

13 December 2012

Australians are making mistakes every day with credit, and some may be costly enough to mean they are blacklisted from getting a home loan or other credit for the next five years, a consumer advocate for accurate credit reporting warns.

CEO of MyCRA Credit Rating Repairs, Graham Doessel says there is not nearly enough education around credit in Australia, and many people only get educated about their credit rating when they apply for a home loan.

“Often it’s not until people apply for a home loan that they even know what a credit rating is, let alone understand that the responsibility for checking the accuracy of their credit rating rests with them,” Mr Doessel says.

He provides seven deadly credit mistakes that many Australians unknowingly make:

1. Making repayments late

Previously it would take 60 days before a repayment fell into arrears and would be listed on your credit file. But under new credit reporting law – from December 2012 any payment to a licenced Creditor which is made late can be recorded on your credit file for two years and could impact your ability to get a home loan. [i]

“Making repayments on time, every time will significantly reduce your chances of being refused a home loan down the track,” he says.

2. Repaying only the minimum amount

Snowballing interest charges can see people come unstuck until they reach the point where they are unable to pay and begin to get into arrears.

With credit cards, and other finance agreements, pay much more than the minimum amount to avoid high interest charges.

If you have debt which carries over on your card month to month you should look at a card that has a lower interest rate.

3. Buying too much credit

Ignore what the card company or bank sets for your limit – what can you comfortably afford to repay?

Also, if you intend to apply for finance in the future, a lower credit limit looks better to a prospective lender – so if you don’t need it – consider reducing it.

You should also leave some room in your finances over and above your credit debts.

“Many people fall into default when they are ill or there are other emergency situations, because they have no room in their finances to pay for incidentals – and life does happen,” Mr Doessel says.

4. Choosing the wrong kind of credit

Make sure your credit suits you. Make it work for you, not the other way around. What kind of payer are you? What do you need the credit for? There’s no point getting a line of credit if you are the big-spender type – you are certain to get into trouble.

When you choose a credit card – consider what you need it for. If you are going to use it a lot – perhaps the rewards points could be a deciding factor. But if you are only going to use it sporadically – maybe the annual fees should be more important.

The same goes for any big ticket item you purchase using credit – like houses and cars. What does it need to do for you? What can you actually afford? How long will you need it for? Can you live comfortably with this debt?

If you need to go down to one income at some point – will you be comfortable then?

5. Making multiple credit applications

When choosing credit that’s right for you, by all means do research but only apply for credit or give your personal details when you’re sure you want to proceed.

“Many people don’t know that all credit enquiries are recorded on your credit file, and too many will be a detriment to your approvability – so only officially apply when you’re sure,” Mr Doessel says.

6. Not checking credit statements

You should check all bills and statements when they come in, and query anything you’re not sure about. Maybe you were charged twice for an item, or charged too much. It is a good way to be alerted early to identity theft as well. You should also check your bank account statements in the same way. Any discrepancy should be disputed immediately.

7. Not checking Your credit report

Most people don’t know that every year they are able to request a copy of their credit report for free from Australia’s credit reporting agencies.

If you find a credit infringement on your credit report and you don’t believe it should be there, or if you didn’t know about it, then it’s important to insist the discrepancy is rectified, as it will mean you are locked out of mainstream credit for between 5 and 7 years – depending on the listing type.

Often people are told by Creditors and the agencies that the bad credit is there to stay for the term – it can’t be removed. But this may not be true.

For professional advice on how to tackle Creditors and the credit reporting agencies about a listing which should not be there, you can contact a reputable credit repairer.

“A credit repairer will conduct an audit-like investigation into the circumstances surrounding the listing, and assess the Creditor’s compliance with credit reporting and industry law, and negotiate for the removal of bad credit which is proven to be listed unlawfully by the Creditor,” Mr Doessel says.

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[i] http://www.comlaw.gov.au/Details/C2012B00077

ENDS

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