Comprehensive Credit Reporting: How You Get Judged For A Home Loan Has Changed
(Probably For The Better)
Every time you apply for any type of loan, the lender reviews your credit report – you see ‘get your free credit report’ advertised all the time on TV or on social media. This report is one of the key reasons why you do or do NOT get your loan.
Interestingly – up until recent years – this report hasn’t really shown how well you manage your debts and the lender will have no idea if you are a good re-payer. They could only tell that you weren’t a ‘bad re-payer.’
That seems kind of important. Surely a lender would rather lend money to someone who always pays on time, rather than someone who has a history of being late with their repayments. Before Comprehensive Credit Reporting, they had no way of telling these people apart.
Now They Do, Thanks To Comprehensive Credit Reporting.
Every time you apply for credit (it could be a mortgage, credit card, store card or any other type of loan) the lender will be able to see the following information about you
- the types of loans and credit that you have applied for in the last 5 years, which is reflected as enquiries from credit providers who viewed your credit report with a credit reporting body
- a breakdown of the accounts that you’ve opened
- a 24-month breakdown of the way in which you pay accounts you have with banks, credit unions and other finance companies (but not phone or utility companies) – showing if you pay your accounts on time, every month
- whether you’ve ‘defaulted’ (i.e. missed your payments by at least 60 days) on any of your loans or credit accounts
- any legal action against you such as a default judgment where a court has ordered you to repay money that you owe to a credit provider.
The key change is the 24-month breakdown of the way in which you pay accounts… that’s the new part and it means that if you want to maximise the chances of being approved for a home loan then you need to make sure that you pay all of your loans/credit cards on time each month.
Lenders will be much more likely to approve your loan if they see that you are always on time with your repayments.
If you are not, I’m not saying that you need to wait until you have a 24-month track record but at least try to go 6-12 months of on-time payments before you apply.
That way you will be more likely to be approved because you’ve demonstrated you’ve turned around your reliability in their eyes.
If you need help applying for a home loan, then your best bet is to either call 1300 661 211 or register online at https://www.mortgageworldaustralia.com.au/contact-us/ and we will explore how you set yourself up to succeed in light of the new comprehensive credit reporting that lenders now have access to.