Could a poor credit report make it harder to buy a home?
Having a bad credit report may cause any lender to look twice at your home loan application. If they don't like what they see, you may have to jump through several bureaucratic hoops, pay higher interest on your loan or even give up on your dreams of home ownership.
There's enough to worry about when buying a home without doubts about your credit report in the back of your mind. Read on for a quick run through on Equifax credit reports and how it could affect your home loan application.
What is a credit report?
In simple terms your credit report refers to your history of accruing and repaying debt. According to the Australian Securities and Investments Commission this 'history' will include the following1:
- Information about credit cards and personal loans you currently hold, or held in the past.
- Late payment information - details of any debt repaid after the due date on credit cards or personal loans.
- Defaults - Up to date information on all debts you hold that are more than 60 days late (debts can only be in default if they are $150 or more)
- Repayment history - a detailed history of repayments made to credit cards or personal loans.
- Commercial loans - all details of any business loans you've held will be included from March 14.
Before your credit provider lodges a default that will tarnish your credit history they must try to notify you. For this reason it's important to check all correspondence with your bank or credit provider comprehensively and avoid any bad debts that could compromise your credit file.
A bad credit loan - not the ideal way to borrow money for your new home.
Why and how does it affect your home loan application?
When banks offer you a home loan they are essentially betting that you'll be able to pay it back - any information that causes them to question your ability to do so will minimise the chance that they bet in your favour.
If banks see that you have several large defaults in your credit history they may be more likely to deny your home loan application. If there are minor inconsistencies and late payments they may instead charge you a higher interest rate on your loan, which is essentially an extra charge used to offset the risk they are taking.
This is known as a bad credit loan - not the ideal way to borrow money for your new home. If you've struggled to repay loans in the past higher interest rates on a large property loan might be a recipe for disaster.
It is important to note that a lender may look at many factors when considering whether to accept your application. This can include information on your application form, information they may already have on you if you’re an existing customer, as well as your credit report and score.
Instead it's best to be smart and know where you stand by ordering your one free Equifax credit report, or investing in a credit alert credit to help you stay aware of your status at all times.
Can I correct my credit report?
If you discover inconsistencies or things you believe are incorrect in your credit file then it may be possible to correct it. The first thing you should do is contact your current credit provider and inform them about the item that you believe is incorrect.
The Consumer Action Law Centre2 states that by law they must deal with your complaint and cannot pass it on to another provider. They must either correct your credit file or reply, disputing your claim and explaining why.
If you don't get anywhere with your creditor Equifax can help you investigate it at no charge to you. Our expert team may take 30 days (or longer depending on the correction and with your approval) after they receive your correction request to thoroughly investigate your case, and may even contact your creditor to verify your complaint.
The last thing you'll want to be doing prior to buying a home is debating details of your credit history with your bank. Equifax can help take the stress out of the situation by getting you your Equifax credit report so you know where you stand when it comes to your credit worthiness.
Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstance before acting on it, and where appropriate, seek professional advice from a finance professional such as an adviser.
1ASIC MoneySmart, Credit Reports. Accessed November 2016.
2Consumer Action Law Centre, Credit Reporting Correcting Mistakes. Accessed November 2016.